Consumer Packaged Goods: Optimizing the distribution network in Europe

Case study
06/25/2014

Context and goal

A food and beverage manufacturer, world leader in the mineral water sector, sells 14 billion bottles a year worldwide. It was facing a number of Supply Chain issues:

  •  Sources produce a constant volume of mineral water throughout the year but consumption is twice as high in summer as in winter, necessitating the compilation of anticipation inventory
  • Logistics costs are high relative to the product price, since road transport costs are high and the rail service in France is being overhauled
  • A sustainable development policy with CO2 reduction targets had been introduced.

To address these numerous issues, this manufacturer commissioned Argon Consulting to optimize its European distribution network.

Approach and methodology

Initially, the project team met with Supply Chain organizations from each European country to identify the specificities of the various markets (service rates, packaging activities or deposit returns, etc.) and their demands (end of service agreement, rail capacity, etc.), and to collect detailed data on their activities (sales, customers, flows, inventory, costs, etc.).
The implementation approach first involved identifying the potential Open Systems Interconnection (OSI) network benefits, then proposing a network of warehouses across Europe, which would provide the best cost/time/CO2 tradeoff, while guaranteeing the best return on investment, taking into account the transformation costs.
One of the difficulties of this type of projects is its complexity:

  • Dozens of sites in Europe
  • Supply via rail or road
  • Presence of both types of deliveries to customers: direct and via warehouses
  • Management of anticipation inventory
  • etc.

We decided to use a network optimization tool, combined with our own modeling tools. This enabled Argon Consulting’s teams to consider all parameters in their full complexity, and to simulate a wide range of scenarios in a limited time. Multiperiod modeling was also required, which considered the optimum compiling and positioning of anticipation inventory, due to the strong seasonal nature of demand for the client’s product, combined with fixed production capacities.

The project benefited from Argon Consulting’s expertise in terms of price benchmarking and knowledge of market trends (rail service, port services). We used sensitivity analyses to ensure that the calibration of parameters between high and low scenarios had little influence on our recommendations.

Lastly, we worked to ensure the approval of each country’s head of organization, while recommending a global optimization solution for the group.

Results

The project helped to identify a cost reduction in excess of 10%, while reducing carbon emissions by the same proportion.
In addition to the closure or relocation of some sites, the recommendations were essentially based on:

  • Increasing direct plant flows for delivery to nearby customers
  • Maximizing train capacities for delivery to certain sites
  • Transferring plant packaging activity to warehouses
  • Increasing the use of the full train to ports for delivery outside Europe