How Do You Design Your Supply Chain To Withstand a 300% Tax Increase?
A leading brewer in Russia has a supply chain that runs from Kaliningrad on the Baltic Sea to Vladivostok on the Pacific Ocean. Its breweries produce more than 400 million gallons of beer a year and ship it to over 1000 locations. As beer consumption in Russia had quadrupled in recent years, the network grew to meet demand quickly and with little consideration of supply chain design. Faced with a change in national policy toward beer that includes a 300 percent tax increase and strict new regulations concerning where beer can be sold, brewery leadership needed to design a more efficient and nimble network capable of performing in a dynamic and cost constricted environment.
LLamasoft partnered with the brewer to study its Russia beer network. The supply chain was modeled from plant to customer using Supply Chain Guru®. The optimal number and location of distribution depots was defined, the product flow optimized, and the impact of any network changes on the total cost-to-serve calculated. Alternate scenarios were created to examine the impacts of demand changes, capacity re-allocation and changes to the distribution network. Supply Chain Guru’s network optimization engine presented several feasible scenarios that were optimized for cost as well as service goals.
The new optimized network generated by Supply Chain Guru reduced the number of depot destinations by 55 percent and represented a major shift in operations away from small, local distributors to larger, higher efficiency warehouses. An unplanned benefit was the increased simplicity of dealing with fewer distributors and entering into longer-term contracts that were beneficial to both partners. Service levels remain within customer requirements and the reduced number of sites has had a dramatic impact on fixed costs and operating expenses. Production costs increase slightly in the new model, but were significantly offset by savings associated with warehouse operating costs and inventory holding costs. Developed to roll out in stages, with early quick wins financing subsequent projects, the new supply chain would save nearly $40 million a year.