Warehouse & Distribution

Network Optimization
Proposal
 Optimizing the supply chain begins with point of manufacture
through customer delivery and all supporting functions
Value Chain Flow and Scope of Analyses ILLUSTRATIVE

Focus of the Proposal

Manufacturing Plant-to-DC Distribution Plant-to-Customer DC Channels

Finished Goods Logistics Centers Logistics

CLIENT Plant
Customer
CLIENT DCs Warehouses
•
•
•
CLIENT Plant

3rd Party DCs Customer

Co-Manufacturer Warehouses
Plants
▪ Transportation Efficiencies ▪ Warehouse Optimization ▪ Transportation Efficiencies ▪ Customer Facing Activities
– Mode optimization – Optimal network model – Mode optimization and Processes
– Lane optimization – Space utilization – Lane optimization – Order management
– Vehicle maintenance – Labor management – Vehicle maintenance – Consolidated C/S
– 3rd party management – Systems and processes – 3rd party management – Policy alignment

▪ Leverage Scale
– Organization – Policies – IT – Best Practices and
– Processes – Governance – Purchasing Power Benchmarking

Strategy& IC Document
While consolidation is a primary objective, the supply chain
must also be tuned to meet demands for growth, differentiation
and efficiency Complexity of Demands on Today’s Supply Chain

Owned Developing cross-

Simultaneously DC enterprise
expanding, Retail Chain
Owned Plant Store capabilities to
integrating and serve different
consolidating Vendor 1 channels and
across supply customers
3rd Party Customer Commercial
networks Processing Warehouse HVAC
Consumer

Distributor
Vendor 2
Mass
Merchandiser
Managing
complexity of
Increasing JV / Alliance
Private Label large scale
operational
differentiation
efficiency,
across markets-
agility,
channels-stores
sustainability and
and categories-
resiliency
brands-products

Strategy& IC Document
A set of key questions need to be assessed to enable us to develop
an optimal distribution network strategy
Key Questions
• What do the network economics suggest about key tradeoffs? How does this drive the number and
location of facilities?
• What are the best practices that exist across CLIENT today in transportation and warehousing? What are
the gaps to best practice? What incremental financial benefits could these bring?
• What are the network consolidation options? What configuration alternatives could be included (e.g.,
multistop routes)?
• What are the key requirements across different customer segments and channels? To what extent can we
tailor the supply chain to these segments for improved cost and service?
• What is the optimal distribution footprint and flow to minimize cost while delivering market-driven service
levels across each channel? What is required to achieve this in cost and timing?
• To what extent does CLIENT have the capabilities to manage the combined network? Should these
functions be owned or operated by a 3PL or other partner? Or a hybrid? What are the risks?
• How should the operating model (organization, decision rights, processes) be designed to support the new
supply chain while allowing each business unit flexibility to operate independently?

Strategy& IC Document
An initial set of hypotheses will guide our work - but will be
rigorously tested and modified as the work unfolds Illustrative -- To Be
Initial Hypotheses Jointly
Developed and Tested
▪ Current network can be consolidated to maximize transportation and distribution efficiency
Network ▪ Cost and service can be improved significantly by consolidating supply chains across the
Optimization CLIENT's system - clients in similar situations have achieved savings of greater than 15% of total
addressable spend

▪ Truck utilization can be improved by modifying policies (e.g., order grouping by region to drive
Transportation FTL)
Efficiency and
Effectiveness ▪ Greater scale across CLIENT could drive additional synergies (e.g., mode optimization, backhaul
opportunities, multi-stop routes)

Warehouse ▪ Warehouse requirements can be reduced by adjusting fulfillment policies that lead to high
and Inventory inventory and low turns
Efficiency and
▪ Warehousing practices vary across the system and could be brought to internal best practices
Effectiveness

▪ A new operating model overlay will be required to manage the consolidated network across BUs
Operating
(revised set of policies, processes, and KPIs)
Model Overlay
Design ▪ Capabilities to manage fully optimized network may not currently exist at CLIENT and may need to
be developed or acquired by partnering with a supplier
Note: Detailed illustrations of how each hypothesis will be tested can be found in the Approach & Deliverables section
Strategy& IC Document
 Our focus for the first phase will be to define the strategy, build
alignment, develop the implementation
High Level Approach
plan, and draft RFP
Phase 0 Phase 1 Phase 2
STEP I: STEP II: STEP III:
Refine Baseline and Scenario Analysis – Consolidation Develop
Define Scenarios & Optimization Recommendations
1 5
Understand
Customer and Network Modeling &
Channel Optimization 9
Requirements
Recommended
Path Forward
2 6 Phase 2
Build Baseline and Partner
Transportation Effectiveness
Understand Cost Selection
Phase 0 and Efficiency 1
Drivers and Stand-
Build the 0
Up and
Case for Implementation Manage
Change 3 7 Roadmap Program to
Assess Warehousing and Inventory Drive
Productivity Gaps Effectiveness and Efficiency Transition
1
1
4 8
Draft RFP and
Identify Suitable
Identify Scenarios Operating Model Overlay Vendors
for Testing Design

2-3 weeks 4-5 weeks 2 weeks

Executive Vision Agree to Opportunity Opportunity
Committee Validation Scenarios to Test Confirmation Planning
Strategy& IC Document
 I

Step I: Baseline Assessment

Key Steps Major Activities Key Deliverables

1 Understand • Conduct cross-functional interviews • Synthesis of critical customer and industry
Customer and • Understand and assess critical industry, channel, and customer requirements that impact supply chain flows and
Channel requirements service levels
Requirements • Understand competitive supply chain capabilities and performance,
e.g., lead times, landed cost, etc.
• Define key service requirements and trends
2 Build Baseline • Define baseline footprint and physical flow • Comprehensive warehouse and distribution
and Understand • Build comprehensive financial baseline baseline:
Cost Drivers • Evaluate current cost structure and drivers (e.g., warehouse costs by – Physical locations
element, type, and location; inbound and outbound transportation – Freight flow and modes
costs by cost element and route) – Costs
• Understand current capacity/utilization and evaluate current – Performance metrics
performance measures and trends (e.g., lead-time, fill rate, inventory
turns, on-time orders, utilization, etc.) • Visual depiction of unique supply chain flows and
associated costs for each activity
• Segmentation of supply chain into logical flows
• Initial view on potential opportunities
3 Assess • Compare supply chain costs across network and over time • Key supply chain benchmarks and relative
Productivity Gaps • Benchmark supply chain performance CLIENT performance
• Identify areas for potential improvement • List of supply chain productivity gaps

4 Identify Scenarios • Generate a list of potential hypotheses and related scenarios • Comprehensive list of potential scenarios
for Testing • Socialize and test potential scenarios with key stakeholders • Prioritization criteria
• Prioritize scenarios qualitatively at a high-level based on strategic fit • List of final scenarios to test
and potential savings to generate final list of scenarios ( 3 – 4)

Strategy& IC Document
1 Understand Channel and Customer Requirements I

We frame supply chain improvement in the context of market

back, business success factors
Critical Success Factors and Supply Chain Responses
Marketplace Critical Success Factors
• Product range offered
• Evolving channel demands
• Quality and adherence to specifications
• Responsiveness and accessibility (customer perspective)
• Distribution penetration and coverage
• Price
• Lead times
• Competitor’s strategies Supply Chain Critical Success Factors
• Reliability of delivery
• Cost
• Promotions
• Adherence to specification
• Brand image
• Flexibility to product changes (Innovation)
• Flexibility to product range breadth (Changeover)
• Flexibility to short-term change (Responsiveness)
• Flexibility to demand variation
• Lead times Response Requirements
• Reliability of delivery
• Network strategy
• Depth of integration
• Selected technologies
• Capacity policies
• Efficiency and productivity objectives
• Planning and control systems
• Costing systems
• Quality systems
• Management and support

Strategy& IC Document
1 Understand Channel and Customer Requirements I

We will start by interviewing key stakeholders & analyze

business plans to assess future strategy and operations on the
supply chain Current/ Future Demand Projections
Key Stakeholders - Example Questions
ILLUSTRATIV
▪ Growth Strategy E
– What is the scope and timing of the growth strategy?
– What regions and channels?
– What are the different demand growth scenarios?
– What are the expectations from the new distribution
network?
▪ Manufacturing & Operations
– What are the investments already approved in the
network?
– What are key bottlenecks in the operation?
– What are the trade-offs between in-house and outhouse
logistics?
– What lead times are required in the future?
– How are suppliers managed?

We assume that demand data and future projections will be readily

available at start of project to facilitate quick ramp of analyses
Strategy& IC Document
1 Understand Channel and Customer Requirements I

We will develop an understanding of market imperatives – i.e.,

how customer and channel requirements will be delivered
Understand Channel Requirements and Source of Value CLIENT EXAMPLE

Customer Value Placed By

Percentage Of Average Required Lead Time For Targeted Delivery Level Of Over
Segment/ Segment On
Total Sales Delivery By Shippers Lead Time Service
Channel Lead Time

1-3 Weeks
4-8 Weeks
A 61% 4 0

1-3 Weeks
3-8 Weeks
B 17% 2 0

2-3 Weeks 1-3 Weeks

C 10% 1 2

1-3 Weeks 1-3 Weeks

D 7% 0 2

1-2 Weeks 1-3 Weeks

E 5% — 4

In this example the client was clearly

overservicing 78% (“A” and “B” 0 Low 4 High
types) of customers

Strategy& IC Document
 2 Build Baseline and Understand Cost Drivers I

We will understand the current network operations, common

delivery models and product flows… ILLUSTRATIVE

Network Baseline: Delivery Models

Manufacturing Plant-to-DC Distribution Plant-to-Customer DC Channels

Finished Goods Logistics Centers Logistics

CLIENT Plant
Customer
CLIENT DCs Warehouses
•
•
•
CLIENT Plant

3rd Party DCs Customer

Co-Manufacturer Warehouses
Plants
Key Data
Required ▪ Manufacturing ▪ Warehouses ▪ Transportation
– Number of sites – Number of DCs – Number of routes/lanes
– Product-site mapping – Owned vs. lease mix – Current mode mix
– Annual production – Number of 3rd party – Number of transportation
quantities DCs providers
– Number of cross docs

Strategy& IC Document
2 Build Baseline and Understand Cost Drivers I

… and develop a comprehensive supply chain cost baseline

Distribution Cost Structure by Geography Average Labor Cost by Distribution Center

(values in $M) ($000 per employee / year)

76.1 Cost / employee partly driven by

CLIENT EXAMPLE 4.4 differences in roles
10.6
5.8

26.7

46.2
15.5 Location-A
Location-B
2.4 Location-C Location-A Location-B Location-C Location-D Location-E
2.1 Location-D
3.6
31.3 3.2 Location-E Occupancy Cost by Distribution
Center
9.1 ($ per sq. ft.)
20.5
4.7

9.1
5.1
3.1 6.9
2.0

Freight Labor Occupancy Supplies Equipment Total Location-A Location-B Location-C Location-D Location-E
Strategy& IC Document
3 Assess Productivity Gaps I

We will analyze a number of measures to develop an

understanding of differences in productivity across the network
Examples of Supply Chain Performance Indicators CLIENT EXAMPLES
Labor Productivity Warehouse Utilization Total
Inventory
18
18.
16.
14.
12.
10.
8.
6.
4
4. 3
2 2 1
2. 1 1 1 0
0.
<10 10- 20- 30- 40- 50- 100- 200- >400Other
20 30 40 50 100 200 400

Labor Rates DC Fill Rate On Time Delivery - 1st Store

92.6
%

A B C D E F G H I J K 9/1/07 11/1/07 1/1/08 3/1/08 5/1/08 7/1/08 9/1/08

Strategy& IC Document
4 Identify Scenarios for Testing I

A fundamental understanding of network drivers helps to

establish initial design hypotheses …

Drivers Of Network Design Distribution Implications Network Implications

Facility Types -
Customer / Market (e.g., Cross Docks)
Product Flows
Requirements

More / Fewer DCs

Products Different Product
Introduced / Handling
Acquired Requirements
Location of DCs

Different
Distribution
Performance Level
Service Offerings
Requirements Size of DCs

Markets / Higher / Lower Outsourcing

Geographies Shipment Volume Opportunities

Strategy& IC Document
4 Identify Scenarios for Testing I

…and then develop a set of scenarios for ‘deep dive’ analysis

ILLUSTRATIV
E

Initial Scenario
Hypotheses Options Screening Criteria Detailed Modeling

Hypothesis N
Scenario
Hypothesis … 3

Hypothesis 4

Hypothesis 3 Scenario
2
Hypothesis 2
Examples:
•
Hypothesis 1 •
Warehouses and operations • Strategic Impact Feasibility
can be consolidated across X
and Y ▪ Strategic ▪ High level estimate ▪ Potential ease of
Scenario
objectives of savings achieving
N
magnitude
▪ Need for change ▪ Amount of buy-in
▪ Competitive ▪ Scale advantage ▪ Resources
context ▪ Key required
interdependencies
▪ Timing
considerations

Strategy& IC Document
 II

Step II: Scenario Analysis - Consolidation & Optimization

Key Steps Major Activities Key Deliverables
5 Network Modeling • Build analytic network model—model key supply and demand points and • Analytic model of product flows and economics of
& Optimization validate network for each scenario option including baseline
• Evaluate and review scenarios • Opportunities for distribution network improvement
• Understand the relative opportunities – cost vs. service implications • Estimate of cost savings and service level impacts of
• Assess impact of scenarios against critical customer requirements, industry each opportunity
trends and competitive positioning

6 Transportation • Analyze spend and volume by transportation mode • Opportunities for transportation effectiveness and
Effectiveness and • Analyze weight and cube transportation efficiency and resulting cost per efficiency improvements
Efficiency equivalent unit across BUs/DCs • Estimate of cost savings and service level impacts
• Evaluate transportation options including mode optimization, shipment associated with each transportation opportunity
grouping, multi-stop routes
• Evaluate pros and cons of options (e.g., service impacts, cost savings)

7 Warehousing and • Conduct internal and external benchmarking of warehouse performance • Identification of business process, policies, labor
Inventory • Understand general differences of each facility driving this performance practices, and metrics necessary to improve
Effectiveness and (scale, capabilities, technology, policies, etc.) warehouse effectiveness and efficiency
Efficiency • Estimate of cost savings associated with changes
• Understand the inventory policies and performance
• Analyze performance gaps, and identify facility practices to close gaps (e.g.,
processes, policies, labor practices, and measures and metrics)

8 Operating Model • Assess how decision rights, processes, and metrics vary across the network • Definition of potential operating model overlays
Overlay Design • Identify and evaluate potential future-state operating model overlay options: – General governance structure and decision
governance, organization, key decision rights, and key processes rights
• Assess CLIENT’s internal supply chain capabilities and the company’s ability – Key processes to be standardized
to manage the combined network – KPIs
• Explore outsourcing some or all of the network (acquire capability) • Evaluation of benefits, risks and change management
hurdles
• Socialize options and solicit feedback on potential operating model designs

Strategy& IC Document
5 Network Modeling & Optimization II

For a select set of scenarios, we will then analyze whether the

flows and economics are optimal from a total cost perspective
Network Design Approach ILLUSTRATIV
E
Inbound Inventory Costs
Transportation Costs

$ $ Total Costs

1 40 1 40
Number of Warehouses Number of Warehouses $

Demand Patterns Outbound

Transportation Costs Total Logistics Costs
and Flows 1 40

• Variability Number of Warehouses

• Demand points “Optimal”
$
• Historical/future $ Customer Structure
patterns Requirements
• Design of key
1 40
elements (DCs, 1 40
cross-docks, slow Number of Warehouses
Number of Warehouses • Lead times • Location, volume
movers) –DC
Facility Costs • Fill rates
–Slow mover
• Local presence facilities
–Cross-docks
• Service areas
$ • Product flows
• Inventory levels and
positioning
1 40 • Transport mix
Number of Warehouses

Strategy& IC Document
 5 Network Modeling & Optimization II

We have experience with a variety of modeling tools, but for this

effort we will rely on the 3PL’s model for detailed freight
analysis LogicNet

LogicTools – LogicNet CAPS – Supply Chain Designer

Insight – SAILS
I2 - Supply Chain Strategist

i2 – Supply Chain Strategist Spreadsheet & Database Models

Strategy& IC Document
5 Network Modeling & Optimization II

Given the scope and objectives of the project, we propose to build

an Excel-based model for CLIENT to evaluate total costs
Advantages Spreadsheet Model Sample

• Does not require licenses or

extensive setup

• Provides for a customizable,

repeatable model for CLIENT

• Can be used by experienced Excel

users without extensive training

• Can be configured to accept data in

existing formats

• Extensible and customizable in the

future if additional capabilities are
required

We have deep experience with various modeling tools (LogicNet, SAILS, i2, etc.)
but suggest an Excel model for CLIENT given the existence of 3PL freight models

Strategy& IC Document
 5 Network Modeling & Optimization

We will analyze a range of network scenarios around

performance, cost and return 1 CLIENT EXAMPLE
Total Distribution Costs ($M)
Total
Cost
DC
Optimal Range Operations
Inbound Logistics
Outbound Logistics
Inventory Carry
Cost
6 DCs

# of DCs
1 2 3 4 5 6 7 8 9 10 11 12 7 DCs
% of demand covered within lead time
1-day 46.2% 81.6% 92.9% 97.4% 98.0% 98.9% 99.0% 99.6% 99.6% 99.6% 99.6% 99.6%
2-day 83.5% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7%
3-day 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7% 99.7%
Source: Strategy& analysis
Strategy& IC Document
5 Network Modeling & Optimization II

CLIENT would be included throughout the scenario analysis to

ensure full validation, understanding, and buy-in to the results
Network Modeling and Validation

Database of Joint Teaming on Scenario Final Scenario

Input Data Model Development Modeling Process Model(s)

+ + +
Documentation of Model and Model Outcomes
Key Assumptions

• Compilation and • Mechanics of building • Framing of network problem • Scenario results

Key Elements

documentation of model • Methodology for scenario • Sensitivities

input data • Network flows and generation and synthesis • Opportunity
• Listing and validation economics • Interpretation and sanity
of input assumptions • Key cost drivers and checking of results
trade-offs • Developing “what-if” scenarios
• Testing of model sensitivity

Strategy& IC Document
 6 Transportation Effectiveness and Efficiency II

To assess the incremental benefits beyond consolidation, we will

examine current transportation spend (e.g., mode CLIENT EXAMPLE
opportunities) Situation and Opportunity
Opportunity Breakdown by Mode Mix Scenario
Annual Spend and High End of Opportunity in $M ▪ Opportunity: A tailored, centralized and structured
$M $MM
$MM $MM negotiation approach with each railroad will result in
M
$MM Truck more competitive rates
Direct
Truck
Transload ▪ Analysis: For each railroad we evaluated:
Rail 1 – Current business and expected growth
Competition
Truck
– Discount level vs. published rates or minimum scale
2
Competition shippers
– Additional business they could win from (or lose to)
other railroads
Limited 3
Competition – Additional business they could get from (or lose to)
truck carriers direct and via trans-load (estimated
50% conversion potential where access is available)
– Potential to collaborate to better plan shipments and
Current State Scenario 1 Scenario 2 Scenario 3 lower total costs
Key Activities: Negotiation with BNSF and UP
Negotiation with CN, CP and NS ▪ Insights: Railroads with the highest potential are BNSF,
Shift rail volume to preferred carriers UP and CN – CP already has most of Canada volume
Shift truck to rail and a contract until 2014
1) Lanes served by other railroads with direct access to origin and destination
2) Shorter lanes where truckpresents a competitive alternative
3) Limited real competitive alternatives, savings (~5%) will depend on overall negotiation and achieving general discount vs. published rates

Strategy& IC Document
6 Transportation Effectiveness and Efficiency II

A perspective on how best to balance freight flows should also be

factored into the mode mix

Optimizing the buy Required analyses

1 Own flow balancing – balance existing

opposite one-ways • Mapping of flows by type of transport, origin-
destination, frequency, etc.
Fill back haul – take commercial approach • Baseline identification of limitations
2 – Timing requirements
and find shipments to fill empty back hauls
– Trailer / material requirements
• Rate comparison
3 • Supplier overlap identification
Buy back haul – buy empty back hauls
• Opportunity cost of ‘non-alignment’ of
delivery/timing requirements
• Market understanding
4 Buy one-way – Suppliers
– Market developments (e.g. opportunities
for rail transport)
– Competitors’ strategy
5 Buy round trip w/ empty leg

Strategy& IC Document
7 Warehousing Effectiveness and Efficiency II

Increasing warehousing efficiencies could substantially reduce

the CLIENT’s overhead cost base
CLIENT EXAMPLE

Materials Management Initiatives Headcount Impact by Initiative

Initiative Activities

• Warehouse consolidation • Reduce from 3 to 2 warehouse

(eventually consolidate GRE
warehouse)
• Shipping consolidation and • Drop ship from suppliers
process improvement • Consolidate labor categories

• Non-value added activity • Eliminate transport and fueling

reduction activities
• Reduce property management
support
• Receiving dock to stock • Reduced shortage work
process improvements • Faster receiving process drives
less work

• Delayer management • Delayer management due to

smaller overall material
management organization size

Strategy& IC Document
8 Operating Model Overlay Design II

We will define a high-level governance structure to balance

autonomy with scale CLIENT
EXAMPLES
Centralization Organization Design
Is the service needed for Yes 1 Site Manager
governance, or fiduciary Corporate FT
responsibility? E

No
Operational Manager
Facility Manager Manager Site Logistics
16 PRODUCT A 1
Do the business units’ No FT
200
FT
FTE
customers need this Eliminate E 150 PRODUCT B E
service? FTE
RETURN
10
FTE 9 10
Yes FT
On Site Outbound
FT
Expedite Logistics
E E

Does it provide a Yes

Business Unit Roles and Responsibilities
competitive advantage?

No

Can someone else provide Yes Outsource /

the same service cheaper
or better? Partner

No

Does this service

demonstrate economies of
scale across business
Centralized
units?

Strategy& IC Document
 8 Operating Model Overlay Design II

We will make recommendations so that the right operating

model guardrails are in place to support CLIENT's supply chain
vision Element Best Practices
Supply Chain Operating Model Dimensions ▪ Efficient and effective org structure to partner across companies
▪ New and more broadly defined supply chain roles, extended to shelf
• Capabilities ▪ Vendor relationship management
• Structure/ Alignment Organization ▪ Rigorous training and development programs
1 Organization • Roles & Responsibilities ▪ Focused roles on continuous improvements
• Decision Rights ▪ Improved analytical and functional skills
▪ Integrated support network

▪ Clearly defined and documented supply chain processes

▪ Supply processes supporting multiple flow paths
▪ Proactive customization process and decision framework
Processes & ▪ Linked processes from manufacturing to shelf
Policies ▪ Unique processes both to implement and execute against advanced
Performance capabilities, like DDSN
4 ▪ Differentiated service levels
Management
▪ New order/customer service processes

▪ Flexibility in operations: cycle time, packaging, palletizing &

• Metrics warehousing
• Management process ▪ Speed, reduce order to fulfillment time
▪ Total supply chain efficiency
Infrastructure
▪ Formalized customization network
& Technology ▪ Customization Center(s)
2 Processes & 3 Infrastructure ▪ Case pack and package to drive flow through supply chain and at shelf
Policies & Technology ▪ Enhanced picking capabilities
▪ Analytical / decision support tools

• Strategic ▪ Regular reporting and measuring

• Asset configuration ▪ Inventory Performance (e.g., inventory turns)
• Tactical • Operations flexibility
Performance
• Executional Management ▪ Order processing efficiency (e.g., cycle times)
• Systems functionality ▪ Order accuracy (e.g., fill rate, on-time orders, expedited orders)
• “Customer/Retailer” relations • Decision support tools
• Supplier management • Accessibility / Usability

Strategy& IC Document

25
8 Operating Model Overlay Design II

An assessment of capabilities provides a quick understanding of

CLIENT’s readiness to manage the new network going forward
Examples of Strategy& Proprietary Level Charts

Strategy& IC Document
 III

Step III: Develop Recommendations

Key Steps Major Activities Key Deliverables
9 Recommended • Prioritize scenario opportunities • Economic business case for the selected scenario
Path Forward • Define supply chain control architecture • Rough cut investment requirements
• Develop rough cut investment requirements/timing • Start-up and close-down costs
• Estimate start-up and close-down costs for proposed network • Sensitivity analysis of key assumption variables
changes (e.g., impact of extending service lead time, etc.)
• Develop business case for optimized distribution network including
time phased investments, costs and benefits
• Identify risks and mitigating factors
• Perform businesses case sensitivity analysis on key risk factors
1 Implementation • Identify critical change enablers and key success factors • Identification of key interdependencies and
0 Roadmap appropriate phasing
• Develop detailed implementation plans with key milestones, timing
and interdependencies • Implementation/transition roadmap with
– Identify key interdependencies (e.g., changes to manufacturing milestones, timing, and interdependencies
network) • List of critical change enablers and key success
– Develop appropriate phasing (e.g., by BU, by geography, etc.) factors

Draft RFP and • Develop an understanding of the market and identify 3PLs with whose • Detailed profiles of potential candidates inform the
1 Identify Suitable capabilities and networks compliment CLIENT’s needs initial filtering process
1 Vendors • Identify top providers – prioritized against weighted criteria to develop • Prioritized/filtered list of suitable 3PL candidates
a short-list for a formal RFP process to be included in the RFP process
• Draft an RFP outlining the future network to be managed and services • Draft RFP
to be provided

Strategy& IC Document
9 Recommendations and ‘Case for Change’ III

Based on the scenarios modeled by the 3PL, we will recommend

the optimal scenario and design the “future network”…
Before: Baseline After: Recommended Future Network

CLIENT
EXAMPLE

Annual Cost Difference From Baseline

Baseline
Favorable/(Unfavorable)
Total Cost (M) $xx $xx 4.1%
- Structural Inefficiencies $xx
- Manufacturing $xx ($xx) +0.4%
- Distribution $xx $xx 17.5%
- Transportation $xx $xx 16.7%
Total Miles (M) xx xx 39.5%
- Customer Miles xx xx 22.3%
- Transfer Miles xx xx 69.4%
Total DC Sq Feet (M) xx xx 12.5%

Strategy& IC Document
9 Recommendations and ‘Case for Change’ III

…as well as identify the processes and policies to be instituted

CLIENT
EXAMPLE
Supply Chain Capabilities
Process Map

Inventory Distribution Vendor

Forecasting Management
Management Operations

• Current and • Managing the • Modifying • Defining

future market physical flow scheduling relationships
trend predictions and levels of procedures and
for the market inventory (e.g. DSE) to engagement
accommodate model with
• Quantity of • Setting Make-to-stock 3PL vendors
products policies and products
required and to procedures to • Sharing of
be purchased fulfill demand • Driving data
and planned in operating
the supply chain • Systems and efficiencies • Systems, tools
tools for and metrics
• Policies, increasing • Filling for measuring
processes, and visibility distribution vendor
procedures for centers performance
developing • Roles and through
forecasts responsibilities replenish-
for inventory ment
• Roles and management
responsibilities
for forecasting

Strategy& IC Document
1
0
Implementation Roadmap III

Finally, we will establish a roadmap for the ongoing program

ILLUSTRATIV
and make recommendations on hypothesis validation E
A high level business case is developed with the required The transition plan is detailed…
investment timing and expected cash flow profiles
Investment Return Profile
Run-rate savings
Within ~3 yrs

~2yr Payback

Year 1 Year 2 Year 3

… critical enablers and requirements to … as well as a risk assessment and mitigation plan
achieve the supply chain vision are identified
…

Strategy& IC Document
1
0
Draft RFP and Identify Suitable Vendors III

CLIENT will be provided with the key deliverables to execute a

3PL RFP—a list of high-potential 3PL partners and a draft RFP
CLIENT EXAMPLE

3PL Candidates Initial Filter Profiles for Further Evaluation

▪ DB Schenker
▪ Kuehne + Nagel
▪ CEVA
▪ UPS Supply Chain
▪ C.H. Robinson
▪ Geodis
Yes ▪ DSV
▪ Agility
▪ Expeditors Int’l
▪ UTi Worldwide
▪ NYK Logistics
▪ Exel / DHL
▪ Hellmann Logistics
No
Eliminated Profiles
No B2C / Consumer Experience
▪ Does this 3PL have ▪ DACHSER ▪ BDP International
experience in B2C /
No Global Reach
Consumer Goods? ▪ A.N. Deringer ▪ GENCO Supply
▪ Does this 3PL have ▪ KENCO Chain Solutions
international capabilities? ▪ NFI ▪ Greatwide Logistics
Services

Strategy& IC Document
Execution of the RFP would occur in Phase II

RFP and Negotiation

Conduct Negotiations
and Finalize Agreement
Implement 3PL
• Conduct negotiations Agreement(s)
• Select final supplier(s)
• Resolve timing issues • Bring 3PLs online in
Refine & Issue Analyze RFP
• Finalize and sign parallel with stand-up
RFP Responses agreement(s) process

• Identify/validate • Establish screening criteria

suppliers for RFP • Short-list vendors
• Finalize RFP • Develop negotiation strategy Stand-up the New
• Release RFP Network Model
Gain Buy-In of Key
• Address supplier Constituents
questions
• Execute moves
• Refine business case / • Close facilities
savings potential
• Refine operating model • Institute operating model
• Review and revise changes
proposals
• Identify champions

Strategy& IC Document
The key outcomes include optimized network strategy with
business case, an operating model overlay, and a plan for
rollout
Key Deliverables
Phase 0:
▪ Presentation for Executive Steering Committee – case for change

Phase 1:
▪ Understanding of network economics to quickly evaluate the high level network model
▪ Detailed strategy to accomplish this transformation
– Network model of product flows (provided by 3PL) and operating cost for each network scenario option
– Optimized distribution network defining number and location of DCs and total operating cost
– Additional transportation and warehouse productivity efficiency opportunities
– Economic business case for the selected scenario
▪ Operating model overlay
– Proposed key business processes and key KPIs
– Assessment of CLIENT capabilities to manage the network and make/buy recommendation
▪ Executable implementation plan.
– Timing of closures and moves
– One-time costs
▪ Preparation for 3PL selection
– Prioritized/filtered list of suitable 3PL candidates to be included in the RFP process
– Draft RFP
Phase 2: Out of scope

Strategy& IC Document