Background

A leading retailer based in the U.S. approached the Summit Advisory Team to conduct a network feasibility assessment. The company, a multi-channel retailer with over 80 stores and more than 500 wholesalers, has an annual revenue of $400 million. They needed a group of experts to help them investigate the necessity of opening a distribution center on the West Coast.

Objective

The client wanted an assessment of their network to see if they should open a West Coast fulfillment node. With the growing company operating out of a single distribution center (DC) in the Northeast, both customers and retail stores in the Western United States were experiencing long delivery times. The client was looking for a way to speed up delivery times and keep their customers happy.

Methods

The Summit team implemented a three-step approach to help the client with their network assessment that included discovery workshops, data gathering and analysis, and building a network model.

Step 1: Discovery Workshops

Summit held discovery workshops with cross functional teams across the entire company. The team needed to fully understand the client’s situation and also gain alignment on what they were trying to solve for. It was important for the Summit team to understand the demand for products across the country, its speed to their customers, and why the client wanted a presence on the West Coast.

Step 2: The Data

With a better understanding of the situation, the team began to gather the data. They looked into a broad range of data from financial information to growth reports and operational KPIs. It was important for the team to understand how the current facility was operating in servicing their ecomm business, their wholesale business, and their retail stores. A robust data analysis would show whether adding a West Coast facility would be a cost effective move.

Step 3: A Network Model

The Summit Team built a baseline network model from the data they collected to identify how the client’s network was performing in terms of cost, speed, and productivity. They also layered in how the demand was spread in the United States, allowing the data to tell the story of where the client’s customers were, where the demand was, and whether a West Coast presence would be the best solution.

From the baseline network model they put together, the Summit team was able to build out alternative scenarios by running the data through Elevate, their data modeling tool. Those scenarios showed what the network would look like with the addition of a West Coast fulfillment center in terms of demand, operating expenses, profitability, and speed. The team then created four other scenarios for the client that included using large stores, 3PLs, and greenfield locations for fulfillment to give them optionality.

Results

The network model scenarios made it clear that adding a West Coast node was not a financially viable solution for the client. The current merchandising systems could not support a multi-node network, inventory management systems were not set up to support two nodes, and on top of that, only 23% of demand was present in the Western United States.

The Summit team presented the following final outcomes and actions to the client:

• They advised not opening an additional node as it would triple their fulfillment costs and result in $1.6M negative impact to their EBITA.
• They recommended, instead, to improve inventory assortment and upgrade packages to geographical areas of sales growth potential.
• They also recommended the client move to parity with other similar retailers in free shipping options to improve customer experience.

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