Leading CG Company Reduces Supply Chain Costs

Labor cost is the third largest component of the total logistics costs, just after transportation and inventory carrying cost. It includes cost of packaging, labeling and physical handling of goods. Over the last decade, Consumer Goods (CG) companies have collectively spent hundreds of millions of dollars in addressing transportation and inventory costs. CG companies have implemented route optimization solutions, improved truck load utilization, and executed supply chain network optimization programs to reduce capital and operating expense trapped warehouse and logistics operations. Manufacturing plants have been consolidated and mega RDCs have emerged as the trend. These efforts have resulted in significant cost savings, but shareholders and senior management today are demanding margin expansion. One such leading global CG company, who operates both Direct Store Delivery (DSD) and Warehouse Direct (WD) businesses, is now focusing on labor cost optimization to increase competiveness, shareholder value, and free-up cash for innovation and brand building.
 

This CG company manufactures private labels for large retailers in addition to its own branded products. The branded products are made to stock and stored in the RDCs. The private labels are made to order and are shipped to customers as soon as they reach RDCs. So what was the business opportunity to improve supply chain operations and financial performance? The issue had become complicated over time. With DCs and RDCs being in close proximity, and to ensure minimal production line and throughput issues, the CG company decided to ship the pallets to the RDC as soon as they were shrink-wrapped at the plant, and applied the handling unit labels. The labels detailed the associated batch number, product ID, number of cases in the pallet etc. As demand for the brands and products grew over the years, the supply chain practices were not optimal and produced extremely high operating costs. At each RDC yard, pallets arrived, were manually sorted by yard managers, labels were produced and manually affixed to each pallet, and manual RF scans of each pallet were required to capture the inventory. Each pallet label preparation/application/sorting consumed 15 minutes of valuable time, and at almost 1,000 pallets/day, annual labor costs reached millions of dollars for these supply chain activities.
 

The issue was not just operating costs increasing, tracking the pallets without labels was also becoming difficult, and reconciling pallets at RDCs was consuming even more time. In addition, many plants that had in-house DCs sorted the finished goods within the plant, by DSD and WD business lines without appropriate labels, thereby adding to the complexity and creating warehouse and logistics issues.
 

So, what was the solution to this significant CG company’s supply chain problem? HCL suggested a co-managed IT service delivery model, based on monitoring key business KPIs, and impacting them with specific-value driven interventions by client supply chain leaders. What was important, however, in this case was to ensure the appropriate identification of the business KPIs. Through its Applications Maintenance Services methodology, HCL brings in tools that help to enable end-to-end mapping of the business processes, the applications portfolio that supports these business processes, the data layer from where the applications procure data from, and finally, the infrastructure layer that host these applications. This cross enterprise visibility has enabled HCL and its application support and maintenance personnel to be a lot more intelligent about their customer’s business and enable a process of creating additional value, well beyond the typical incident management that is usually the deliverable of any application support & maintenance engagement. The tool then allows the same team to identify the key business KPI’s by monitoring the sub business process that are impacted and by way of leveraging business activity monitors, identify potential gaps in business process, faults in systems, and applications technology. This whole process allows for proactive measures that IT can extend to help resolve business problems and move towards incremental value creation without bearing incremental costs on consulting or large BPR projects. This bottom-up transformation has helped CG organizations align IT with business in a Co-Managed model.
 

This CG company, was now able to understand that shifting the labeling activity from plant to warehouse eased production line interventions, but did not actually solve the problem. In fact, the problem was even more pronounced, and KPIs were even more negatively impacted, when Finished Goods inventory was tracked to final stocking of the product at the RDC. Realizing the complex inventory problem, the team implemented an auto-label printing and application solution on the production line. Therefore, as soon as pallets were shrink-wrapped, they were labeled automatically, enabling the growing WD business to operate more efficiently with significant overall cost reductions.
 

The benefits realized?

-       Lead time to stock the products in the RDC improved drastically;

-       Manual labor costs, that added no value to the product, were eliminated;

-       Product traceability from manufacturing plants to the RDCs was significantly improved;

-       And, with the ability to scan the handling unit labels, the customer is able to ship the private labels directly from the manufacturing plants to the customer instead of routing through the RDCs, dramatically reducing supply chain capacity needs and operating costs.
 

Moreover, across a multi-billion dollar business in North America alone, millions of dollars of economic value will be delivered to the business.