Leading construction materials firm redesigns supply chain network

Identifying potential savings

The project began with a look at key costs (inbound and outbound transportation, manufacturing, warehouse fixed and variable costs and inventory carrying costs) and key constraints like demand and supply, facility capacity or expandability and lead times to customers.

In considering the current network, the teams looked at potential savings by distributing the combined firms’ similar products lines from the shared sites, determined which facilities should support which markets or customers with which products and identified distribution center (DC) consolidation opportunities.

They next considered truckload consolidation to gain operational and business benefits and efficiencies. The teams explored load consolidation across combined product lines — particularly for customers common to both prior firms — looking for opportunities where a single larger shipment could replace multiple smaller deliveries. Along with more strategic transportation planning, NTT DATA revealed the company should incorporate more truckload freight vs. costly less-than-truckload (LTL) freight.

Determining an optimal footprint

The teams looked at North American finishing optimization, given a long raw material shipping lead times from China and India. The company settled on the best mix of U.S. and Asian locations to hold raw materials and produce finished goods, including the best placement of the acquired firm’s products within its DC locations — and in what volumes — and determine the optimal manufacturing, distribution and 3PL distribution footprint.

The “bought-in” strategy was confirmed as the lowest-cost sourcing approach, with no cost-based financial benefit to increasing the total amount of product postponed in North America beyond the client meeting service requirements. NTT DATA advised that sub-assembly should be sourced from India as the current lowest-cost Asia source, while finishing in China or North America had higher costs.

Planning transformation

To ensure it could reconfigure its network when and where it’s needed in the future, the teams looked at more efficient inventory planning and deployment processes, including integrated demand and supply planning (IDSP).

Benefits of an integrated supply chain network strategy

NTT DATA’s fact-based analysis provided multiple alternative network strategy scenarios. These scenarios helped the firm weigh its options and select a comprehensive, integrated supply chain network strategy that optimized cost while considering service, manufacturing and DC capacity and relevant risk factors — such as demand growth and currency fluctuations — across the combined operations.

• Retaining a port-centric network
• Optimizing locations, volumes, freight consolidation and finishing between two North American locations
• Shifting distribution volumes to areas with better accessibility to customers, trucking lanes, rates and labor

The manufacturer achieved its goals of reducing costs, improving service, driving growth and increasing profitability for the newly acquired business through a series of immediate, near and longer-term network optimization initiatives. With its optimized supply chain network, the combined entity is on track to realize a total savings opportunity of 6.1% of the total cost based on projected sales volume growth targets over the next three years, including:

• 2.8% in near-term cost savings from optimizing the acquired company’s existing network, including consolidating freight from the less-than-truckload (LTL) mode to truckload (TL)
• 3.3% of total cost by prioritizing where to source and store finished products, driven by increasing Asia production and allocating more distribution volume to North American DCs with optimal port access

While the company opted to consolidate North American finishing locations, NTT DATA determined that there are even more savings associated with not finishing in North America at all, achievable by increasing global manufacturing capacity.

As demand growth continues, the team determined that the North American finishing strategy will need to be realigned with long-term capacity planning, given the implications on working capital. Additional investment in advanced planning technology and improved processes will enable the business to better navigate change, including nearshoring some manufacturing back to North America over time.