Retail : Reducing Stocks and Cutting logistics costs

Development of a program to reduce stocks and cut logistics costs
Case study
07/17/2015

Context and objectives

Our customer is a major retail player, who, for several years, has been faced with a significant rise in coverage stock that has not been accompanied by increased sales. Moreover, they have also observed a significant difference in performance in comparison with their main competitors who, for comparable activities, have stock coverage that is globally 10% to 20% lower. In an effort to improve its cash flow and margins, Group management decided to launch a program to reduce stocks and cut
logistics costs.

Argon Consulting was called on to :

  • Identify the stock and logistics costs reduction targets
  • Identify the associated levers
  • Define the implementation road map
  • Make sure that customer management took the levers and objectives into account
  • Set the organization in motion to achieve the results

Approach and methodology

To begin with, we diagnosed the existing situation :

  • Global mapping of stocks: central vs. Shops, segmentation by stage in the life cycle (new products, promotions, staple products, end of life, etc.)
  • Map of the costs of logistics, of the level of mechanization and the flow control processes (instock versus cross-dock)
  • Quantitative benchmark of stock levels and rates of cross-docking
  • Detailed analysis of the extended supply chain organization and processes (assortment controls, merchandising, forecasts, procurement, flow management, stock policy, forward planning of activity, etc.)
  • Identification of malfunctions that produce stocks and paths of improvement of stocks and logistics

This approach allowed us to identify the levers to be applied :

  • Flow controls: more reliable sales forecasts, optimization of the stock parameters (security, promotion, etc.), Review of the rules for cross-docking versus in-stock flows, rules for locating stocks in the network, improvement of supplier performance, etc
  • Management of new products and commercial operations: sizing of promotions, control of the reliability of promotions (new products and commercial operations, etc.)
  • Optimization of assortments and merchandising: control of assortment selections, definition of standard merchandising materials adapted to the shop categories, enforcement of standards, etc

Then, as part of a collaborative initiative with the customer (in order to speed up and facilitate buyin), we:

  • Drew up the key principles of the target modus operandi
  • Identified the needs for change in the organization and roles and responsibilities
  • Refined and submitted for approval the stakes associated with each lever, using simulation models that then allowed us to validate the impact of each of the paths of improvement identified in the first stage
  • Built together the action plans required to bring each lever into play

Finally, we looked at the importance and complexity of implementation of each lever to prioritize the actions and draw up a road map with management to reach the objectives.

Results

This approach, which is cross-functional by nature, allowed us to identify the levers that reduced global stocks by 15% and cut direct logistics labor costs by 15%.
The initiative also spawned a concrete action plan, with a commitment from the management to reach the objectives. We supported our customer throughout the implementation phase.