Background and challenges
A manufacturer and distributor of medical devices had been struggling to navigate all-too-common supply chain challenges: Sharply rising labor costs in their facilities and costly freight from international manufacturing sites to distribution centers, as well as distribution centers to customers. The company engaged L.E.K. Consulting to assess its 4-wall DC operations and distribution network. As part of a broad supply chain cost takeout across the distribution and transportation network, our team assessed savings opportunities across transportation, distribution and labor.
Approach
The L.E.K. team collaboratively led two workstreams - network optimization and 4-Wall DC efficiency.
Network Optimization: We deployed best-in-class network modelling tools to baseline the current state and test hundreds of potential scenarios. Real-time benchmarks were used to ensure accurate results that reflected today’s supply chain, while also modelling sensitivities to ensure go-forward feasibility. Ultimately, L.E.K.:
- Determined the optimal location for a free trade zone warehouse to effectively service 10 countries in the Americas, improve lead times, consolidate air and less-than-container load shipments to full container load, and delayed inventory decisions while avoiding incremental tax and tariff implications
- Assessed the physical footprint across the Americas supply chain to identify redundant facilities and strategically place greenfield distribution centers to improve customer service levels and reduce the cost to serve
- Optimized outbound parcel network, shifting multiple high-density customer markets to zone 2 from zones 4-6
4-Wall DC efficiency: Our team of experts spent 3 weeks on-site, working hand-in-hand with leadership and floor teams to diagnose pain points, identify opportunities and kick-start execution of cost savings. During the time onsite, we:
- Assessed the primary Americas distribution facility to reduce labor spend and improve productivity
- Redesigned the labor staffing model to right-size headcount to demand levels
- Reconfigured slotting and replenishment strategy to improve the flow of work and enhance productivity
- Designed a cascading KPI and accountability structure to sustain change
Results
Working closely with the client leadership team, L.E.K. created significant value that improved customer experience, enhanced its supply chain capacity and capabilities, and reduced cost to serve:
- Reduced average end-to-end lead times by 25% in the Americas
- Generated 5%-10% cost reduction across the network
- Lowered 4-wall DC labor spend by more than 20% through advanced labor planning and management, optimized slotting and replenishment strategies, and balanced facility workflow
For more information, please contact us.
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