Post-Merger Supply Network Rationalization and Cost Analysis of Managing Supply Chain Risk
The leading safety matches manufacturer in India recently acquired another safety match manufacturer and wanted to merge the acquired business with the existing business. Post-merger, the company wanted to rationalize the contract manufacturing base and identify optimal product mix for each. The distribution chain of the acquired company needed to remain the same.
The company had already identified some region-specific contract manufacturers as part of its risk mitigation strategy, and wanted to understand the financial impact of this strategy under the mandate that the contract manufacturer’s capacity would be fully utilized.
A medium-term network optimization model was built using LLamasoft® Supply Chain Guru® with monthly buckets considering all cost elements of supply, production and logistics coupled with inherent supply chain constraints; complex and varying tax structure by region. The solution also incorporated complexities related to supplier capacity constraints, procurement contracts, production constraints, product mix constraints, inventory policies, truck load constraints, transportation policies and desired service level. The solution helped the company to identify the optimal supply chain network, including:
- Product mix for each contract manufacturer
- Raw material sourcing from suppliers for contract manufacturers
- Distribution lanes from contract manufacturers to warehouses for finished goods
Scenarios related to the risk mitigation plan were then modeled to help the customer quantify the impact of its risk mitigation strategy.
The solution provided a framework which helped the company reduce network complexity and identify cost benefits, including:
- Identify right product mix for each contract manufacturer, post-integration of two supply chains. This to help customer reduce the distribution and raw material and packaging material sourcing cost
- Firm distribution network to the tune of 90 percent and keep 10 percent flexible with two supply options to adapt market dynamics without violating supply constraints
- Identify the increase in supply chain cost due to risk mitigation strategy and which contract manufacturers contribute the most to this cost. This helped the customer to draw a strategy for renegotiating cost and/or finding alternate contract manufacturers in the region
- Reduction in month-on-month production and procurement requirement deviations
- Visibility into dispatch plan helped to more efficiently plan truck requirements with logistic providers
- More visibility into the business for negotiating contracts with contract manufacturers and logistics providers and for determining required space at manufacturing premises for raw material and finished goods storage