Situation

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A large CPG company in the United States had fast increasing distribution costs, but did not have a clear understanding of what was driving these costs overruns.

 

Challenge

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The client needed to gain an understanding of why their distribution costs were higher than their budget and most recent estimates. They tasked LogiChain Solutions with identifying the root causes and drivers for the overruns and any risks of further cost increase for the balance of the year.

 

Action Steps

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The first step was for Rene to conduct a comprehensive analysis of the distribution costs and identify the main root causes and cost drivers. He also identified and quantified the risk for additional cost increases for the balance of the year and provided scenarios and estimates for the full year’s costs. 

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Rene provided recommendations, an action plan for reducing distribution costs, and outlined potential cost savings for the key metrics. These recommendations included implementing and enforcing minimum order quantities, defining an annual minimum sales threshold for customers, minimizing standalone and expedited shipments of orders, and re-negotiating customer agreements with special shipping requirements. 

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To monitor the distribution costs and to ensure that the recommended changes were reducing the costs, Rene developed a key metrics reporting system for the client. 

 

Results

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The proposed recommendations offered annual distribution cost savings potential of more than 20% for the client. 

 

The client also gained a better understanding of the various distribution cost components and drivers and was able to better monitor the performance and development with the key metrics reporting.