Can You Increase Service Levels and Save Money at the Same Time?
For a major manufacturer of luxury goods and apparel, Asia is not just a major manufacturing region but also a lucrative consumer market in its own right. With thriving markets for their luxury brands, Asia is a key component in their global success. But the range of products sold made it difficult to have a supply chain appropriate for all of the brands and businesses. Their existing distribution system trapped too much inventory too far down the supply chain, leaving some markets with not enough inventory while others were overstocked. In order to make their overall business more efficient and profitable the company needed to re-design their supply chain to maximize sales at full retail price across all the brands and businesses throughout the Asian market, even if it meant reasonably higher supply chain costs.
The luxury goods company used LLamasoft® Supply Chain Guru® for network and inventory flow optimization. The first task was to model the existing network with its three distribution centers. The next step examined possible alternative network structures where functions handled by local DCs for some brands and business units could be moved to a centralized facility. Scenarios modeled potential locations for this new regional DC and hybrid solutions where the regional DC would handle some, but not all, of the tasks executed in the local facilities depending on product line. In the end, the team produced six potential models, each making the costs associated with moving capacity out of local facilities and into a new regional facility easily visible to the company’s executives.
While each of the six scenarios solved the issue of more efficient inventory, in the end one scenario proved to be the best logical choice; by building a regional distribution center in Shenzen, China, the company not only increased their ability to service the growing Asian luxury market for all brands and product lines, but also saved more than 30 percent ($0.95 cents per unit) in supply chain costs. The many tasks formerly executed at a local level can now be achieved in the centralized facility, lowering costs while also providing the company with greater inventory flexibility and improved time to market measurements.