Challenge: A large consumer goods manufacturer performed a strategic network design project to identify considerable savings in transportation costs, warehouse costs and inventory costs by consolidating warehouses. However, the inventory savings assumed full consolidation of inventory at the new warehouses; this was not consistent with the management incentives that were used in the business. An alternative suggestion of separate stocks for each market wiped out a large chunk of savings.
Solution: Using simulation, the team was able to evaluate some potential compromises under real-world conditions to find the best solution.
Results: The first suggestion was to share safety stock, but to allocate cycle stock to particular market organizations. This still didn’t provide satisfactory savings, but a second attempt showed that by sharing 25 percent of their cycle stock as well, the market organizations could still get 70 percent of the desired savings.
About the Solution Provider: LLamasoft supply chain design software helps organizations worldwide design and improve their supply chain operations. LLamasoft solutions enable companies across a wide range of industries to model, optimize and simulate their supply chain network, leading to major improvements in cost, service, sustainability and risk mitigation.