September 19, 2022

Home Delivery: Reducing the distribution costs of large formats

Finding the best network configuration

Home Delivery: Reducing the distribution costs of large formats

At a glance

Challenge

Our client, a consumer electronics retailer, sought to reduce distribution costs for large formats while maintaining customer service levels. The project focused on optimizing the supply chain and revising logistics rates with a 3PL provider.

Solution

The challenge was addressed through a two-step optimization approach, involving the selection of optimal hub locations and the calculation of operational costs using a routing algorithm. A simulator was developed to validate the feasibility of solutions, ensuring service level requirements were met.

Results

The optimization of the distribution network reduced operational costs by 3%, with additional savings of up to 3% through negotiation recommendations. The methodology also highlighted opportunities to enhance customer value, such as offering same-day delivery.

Challenge

Our client, a consumer electronics retailer, sought to reduce distribution costs for large formats while maintaining customer service levels. The project focused on optimizing the supply chain and revising logistics rates with a 3PL provider.

Approach

Solution

The challenge was addressed through a two-step optimization approach, involving the selection of optimal hub locations and the calculation of operational costs using a routing algorithm. A simulator was developed to validate the feasibility of solutions, ensuring service level requirements were met.

Results

The optimization of the distribution network reduced operational costs by 3%, with additional savings of up to 3% through negotiation recommendations. The methodology also highlighted opportunities to enhance customer value, such as offering same-day delivery.

Our
AI-generated
summary

Our AI-generated summary

Our AI-generated summary

Our client, a consumer electronics retailer, was facing the need of reviewing its supply chain to reduce the distribution costs of large formats (e.g., refrigerators, washing machines) from its central warehouse to the customers’ home. We were invited to tackle this operations strategy problem aiming to minimize transportation and structure costs without jeopardizing customer service level.

The distribution was at that time outsourced to a specialized 3PL. Therefore, the approach should not only be able to come up with the best network configuration but also to make additional recommendations to revise logistic rates.

This challenge was tackled using a two-step optimization approach. Firstly, given the intended number of cross-docking hubs, the best locations to set up the operation were found. Secondly, for each configuration, operational costs were calculated using a state of the art routing algorithm and the optimal number of hubs was determined.

Our AI-generated summary

Our AI-generated summary

This validation was essential to ensure the intended service level.

The optimization of the large formats distribution network allowed the retailer to reduce its operational costs by 3%. Moreover, a set of negotiation recommendations was prepared which could mean up to 3% of extra savings.

Finally, the methodology allowed the identification and quantification of opportunities to improve customer value proposition (e.g. same day delivery).

A simulator was then developed to assess the feasibility of the solutions since there were other operational details to be considered, as the variability in traveling or installation times.

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