Background and challenges
A large US-based distributor and installer of insulation products experienced rapid growth through acquisitions and organic expansion. Due to a historic focus on growth, the client had limited focus on integrating the various acquired brands into the network and on conducting a comprehensive study of its footprint. This, combined with a strong culture of local autonomy, had led to issues around site coordination, inconsistent offerings and approaches, and an oversized and fragmented physical footprint.
L.E.K. Consulting was engaged for two phases of work to perform a network optimization study and determine potential opportunities for improvement across real estate, direct and indirect labor, fleet and logistics, and inventory management.
Approach
Given the client’s uncertainty about the potential impact of a comprehensive network optimization, the engagement was structured in two phases: (1) a diagnostic phase to quickly get to the size of prize and supply chain archetype to implement, and (2) an execution phase where the analysis was rebuilt in the client’s environment, socialized with regional leaders and refined to account for shifts in the market and nuanced learnings from regional leaders.
Diagnostic:
L.E.K. deployed best-in-class network modelling tools to baseline the current state and evaluate a wide range of potential network configurations. Real-time benchmarks were used to ensure accurate results that reflected today’s supply chain, multiple site visits were conducted to validate desktop findings and sensitivities were analyzed to ensure go-forward feasibility.
On day one, we drove the critical task of baselining the current state network. To develop an accurate baseline, our team worked hand-in-hand with the client to develop an up-to-date master site list accounting for recent acquisitions, consolidations and physical moves (hundreds of locations confirmed in this exercise). As baselining progressed, we identified and resolved critical data issues, such as fleet inventory inaccuracies and missing product specifications to ensure accurate findings. Ultimately, a digital twin of the baseline network was established, tying total costs, miles driven and flows across 20+ product categories, hundreds of sites and thousands of customer locations. The digital twin was refined until the model achieved over 99% accuracy.
Once a baseline was established, L.E.K. developed a set of model constraints to ensure analytical outcomes were based on operational feasibility. The most critical constraint in this exercise was the capacity of each location (i.e., how much product could physically move through any location). Given the client lacked a sophisticated methodology for calculating capacity, our team developed a bespoke theoretical capacity calculation for each brand within the broader business.
Refinements were made through site visits and local leadership conversations until there was a high level of confidence among all stakeholders. Additional constraints, such as customer pick-up drive distances and manufacturing capability limitations were applied after a multitude of workshops with the client team.
The digital twin model was utilized to run hundreds of potential network scenarios, balancing cost with service levels to ultimately develop a set of recommended network changes that would improve the cost profile of the supply chain significantly, without sacrificing customer service.
Execution:
The subsequent execution phase was designed to build network optimization capabilities in the client team, refine and update model scenarios to reflect changing market dynamics, and initiate implementation of the optimized network design.
Our team of experts rebuilt the state-of-the-art digital twin inside the client’s ecosystem – developing automation tools, processes and accountability to ensure consistent and reliable model updates in the future. A structured training program (a mix of self-guided and L.E.K.-led trainings) was developed and delivered to the client culminating with successful tests without L.E.K. interjection.
While rebuilding the model in the client’s environment, L.E.K. and the client team took the opportunity to further refine model inputs and account for shifting market dynamics. The diagnostic findings held to further scrutiny, further increasing client confidence.
Once the model was rebuilt and additional opportunities identified, we worked side-by-side with the client team to socialize findings with local leadership and initiate the implementation program.
Results
Working closely with the client leadership team, L.E.K. was able to successfully:
- Identify and help realize approximately $100M in network savings with minimal impact to the local labor force and maintained customer service levels
- Lowered carbon emissions and freight costs by reducing miles driven by 15%-20%, average service distance by 10%-15% and fleet assets by around 10%
- Reduce lease costs by 10%-15%
- Reduce labor costs by 5%-10%
- Upskill the client team in all aspects of network optimization, from data manipulation to scenario running to implication analysis and findings presentation
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