Global nutrition company identifies $20M in annual supply chain savings
One of the world’s largest nutrition companies and a leader in both human and animal nutrition examined its food flavoring supply chain to identify opportunities to reduce cost, improve service, and increase network flexibility and resilience.
The company wanted to enable the continued growth of its flavors business by leveraging its capabilities and capacities across continents, making use of underutilized production locations, and maintaining or improving service lead times.
Business Needs
Moving products between manufacturing locations is complex.
The company saw product formulations that often involved tens or hundreds of natural and artificial raw materials with different availability and cost around the world. Both raw materials and final products require specific transportation conditions and are subject to a variety of import tariffs when crossing international borders. New production locations may also need to be certified and approved by key customers.
The company also wanted to improve its network’s ability to deal with supply chain disruptions and minimize supply chain costs and capital expenditure. The company worked with NTT DATA’s supply chain experts to transform its supply chain and meet new challenges.
Outcomes
- Ensures production flexibility
- Limits capital expenditure
- Improves plant capacity utilization
- Improves customer service levels
The primary strategy resulted in $10-12M of savings per year (12-15% of costs in play) without eroding customer service levels. Secondary strategies delivered $7-9M in savings per year while raising customer service levels due to in-region sourcing and improved plant capacity utilization.
Solution
Testing and quantifying possible supply chain future state scenarios
With the need to evaluate different strategic supply chain options, it was necessary to first build an accurate digital model of the organization’s supply chain. Using NTT DATA’s proven supply chain design methods, the company used the digital model to compare various scenarios in a desired future state. Given the worldwide footprint and supplier-to-customer scope of the project, the digital model had to incorporate all cost elements: raw materials, labor, production, transportation and inventory. Most importantly, raw material and transportation costs were adjusted for significant tariff effects.
Early engagement with senior leadership and the global team was critical
Bringing in executive leaders and other relevant stakeholders early in the process helped the project team identify which alternative strategies could bring the most value and which lower-value opportunities to abandon. The team took both qualitative and quantitative approaches to define the scenarios to pursue. Key model input development used NTT DATA’s proprietary methodologies and client business insights. All got on the same page about data validation, assumptions, scenarios and results.
Elements of the core strategy
The central strategy focused on a select group of high-volume and make-to-stock products that could feasibly be produced out-of-region without a significant impact on service lead times. Many of these products also used globally sourced raw materials, which brought with them high import tariffs. The digital model allowed investigation of trade-offs between production locations and flow paths. Other strategies reallocated production volume to in-region production locations in Asia-Pacific and Latin America.
The quantifiable results and the take-aways
The primary strategy resulted in $10-12M of savings per year (12-15% of costs in play) without eroding customer service levels. It improved flexibility and resilience and limited capital expenditure by using spare capacity at a recently acquired production location instead of building new production capability. Secondary strategies delivered $7-9M in savings per year while raising customer service levels due to in-region sourcing and improved plant capacity utilization.
About this case study
An international nutrition company partnered with NTT DATA to examine a complex supply chain and identify $20M in annual savings.