Integrated Logistics


CHALLENGE

In 2004, the company realized that their five PDCs needed reconfiguration to meet changing customer demand and to maximize profitability. As is true with the supply chains and distribution networks of many mature spare-parts businesses, theirs had been continuously improved. Even after years of fine-tuning, however, there were substantial opportunities for increasing value through comprehensive optimization.

 

Prior to the transformation, the company’s PDCs had:

  • Line volume > 6 million per annum
  • 80% availability
  • 92.5% referral availability
  • Back orders as % of business days: 42%

The company understood its costs and had clear ideas for changing its PDCs, but it needed in-depth and flexible data for examining options before undertaking a network transformation. The manufacturer required a center of gravity (COG) study to identify its best locations, as well as expertise to develop the total value proposition and then implement and execute it to transform its aftermarket business.

 

SOLUTION

The company turned to Neovia Logistics and its integrated logistics services for a powerful combination of network and facility planning and inventory simulation. To harness the study data, the Neovia team used their proprietary inventory simulator technology, which can analyze scenarios at advanced levels unmatched in the industry. They also used best-practice processes that they had refined during many years of aftermarket inventory planning. Their work not only would identify optimum facility locations at the outset, but also would guide their right-sizing and execution of the client’s chosen aftermarket strategy for years to come.

 

With the simulator, the team ran multiple scenarios by adjusting many parameters to compare existing baseline costs and customer service levels with options presented by the network study. Using advanced discrete-event processing, they created exchange curves for each of the proposed PDC network structures and an optimized solution that would work within the client’s business constraints.

 

The exchange curves resembled this example:

 Case -Study -Web -IM-Services -01

 

Key take away

The manufacturer reduced North America PDCs inventory value by a massive 39% while boosting availability by 18.8%.

With each point of the exchange curve, the simulator generated the number of individual stocked parts and the quantity of each part, ultimately determining inventory investment. The team used this data to fully assess indirect costs of transport and handling for a full view of the supply chain costs associated with each scenario. From that detailed information, the client could confidently choose the best strategy, which included reducing their network of five facilities to three.

Neovia’s inventory management team then executed the parameters from the chosen scenarios and used best-practice
processes. One year after implementation, the manufacturer was meeting key targets:      

  • 91.9% availability (+11.9%)
  • Inventory turns: +4.6%
  • 98.2% referral availability (+5.7%) 
  • Back orders as % of business days: 13.5% (-28.5%)
  • Inventory value: -5% 
 
 

 

RESULTS
Over time, Neovia monitored the key performance indicators (KPIs), service loss analysis (SLA) and parameter controls to identify where the business was deviating after implementation. Neovia re-simulated the PDC network (or individual PDCs) and re-optimized their parameters to bring them back in line with the manufacturer’s targets.

Three years later, the client continued to produce even greater results:

  • 93.2% availability (+13.2%)
  • Inventory turns: +48%
  • 98.2% referral availability (+5.7%)         
  • Back orders as % of business days: 13% (-29%)
  • Inventory value: -31%

 

 

 

New factors continued to affect the PDCs’ efficiency. The client wished to improve next-day dealer delivery, reduce the impact of doubled fuel costs for transportation and limit cross-country damage rates. In 2012, Neovia again optimized the network, which revealed that it would benefit from adding two more facilities, placing the master facility and three others in locations that would maximize customer service and profitability.

The reconfiguration increased availability while reducing total inventory and cutting targeted costs. The client’s results
continued to improve relative to their original baseline:

  • 94% availability (+14%)     
  • Inventory turns: +49.7%
  • 98.3% referral availability (+5.8%)     
  • Back orders as % of business days: 11% (-31%)
  • Inventory value: -39%
 

 

Over the course of eight years, through the exceptional capabilities of integrated logistics services executed on a daily basis, Neovia helped this auto manufacturer’s North American operations respond to various factors as they arose to produce the results within their PDC network that were targeted at the time.

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