Although most retailers have an overall understanding of their supply chain costs and margin, the real cost drivers and interdependencies are often not fully visible. This can result in commercial decisions being made without an accurate view of the impact of those decisions on the associated profitability of products, ranges, categories and importantly, channels.
Our client, a leading UK grocer, had a traditional top down approach to calculating its cost to serve that did not consider the true drivers that influence cost in its supply chain and how they varied by channel and product type. Consequently, our client was at risk of making poor strategic growth decisions. The lack of full understanding also hampered our client’s ability to target cost reduction efforts.
Using raw data from our client’s Warehouse and Transport Management Systems we built a bottom up assessment of its cost to serve. Using our cost to serve analytics tool to analyse over 25 million lines of data, we produced a model that calculated the actual duration of each activity within the supply chain.
The modelling tool, using data at individual SKU level, provided our client with visibility of its true cost to serve and how each cost component varied for different product, category and channel to market. We then used an agile approach, with ongoing playback and validation, to target our analysis in specific areas to identify the root causes for performance differences.
Working closely with the client we demonstrated how it could identify and quantify information from the data to drive real value. This enabled an informed approach to performance improvement and commercial decision making. The client can now have informed conversations at board level about the future direction of the business and the impact on supply chain and product profitability at all levels.
In addition, the output from the analytics and modelling tool enabled our retail specialists to work with the client to identify and scope a prioritised portfolio of projects to realise over £20 million in cost savings.