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Supply Today has released a case study that explains how control of cost can be maintained with just a little time. The full text of the study can be found at its website.
The study focused on a fast-moving consumer goods importer that had been experiencing major volume growth with its third-party warehousing provider and was receiving cost impacts above the expected.
The company was not alone. A successful business importing goods from overseas and selling into the sports market nationally was experiencing cost increases with their third party warehouse provider.
This was due to the increases in volumes and storage space required to support the business growth. However, to obtain the best possible cost at time of purchase larger quantities were required. Service levels were good from the service provider and the relationship with the warehouse was good.
“The real life situation with growth and outsourcing had both sides of the relationship working hard at the same time, making for difficult emotive conversations,” said John Hogg, Managing Director of Supply Today. “But there was a problem that needed to be solved and work through the issues.”
In the case study, Supply Today detailed the problems as reported by the client:
However, the third-party warehouse was providing increased services, space and effort to meet the new demands.
Over a few weeks period, Supply Today reviewed and reconciled all data with the warehouse provider as to what was driving the costs. The analysis revealed that most of the costs arose from poor packaging and the unusual shape of the items. For instance, the warehouse found it was only possible to store 8 units on a pallet within the warehouse in a standard rack.
Supply Today then worked with the parties to implement solutions.
The current packaging did not conform to any standards and was originally designed for LCL shipments only and then to be disregarded. Reviewing the need to have 4 items to a box was the first priority as the goods were sold as single units. The cost of packaging, transport, handling and storage were considered. After costing it was agreed to move to individual items with their own packaging.
The change to packaging did not result in any increase in the packaging cost. However, 16 x 4 units can now be stored on a pallet (50% improvement) and an additional 20% can fit into an import container reducing the overall cost per unit.
The second issue was picking costs had increased by 12%. After investigation it was agreed that the costing was fair, however, the need to open every carton of 4 and repack into individual units was driving a cost to both the service provider and the business.
With the change to individual packaging picking costs were renegotiated and reduced by 60%. The service provider actually increased their margin from this change per pick.
The remaining issue was transport costs had increase by 14%. The business was using same day express couriers as it always had. This was reviewed and an overnight service implemented. The customers still had the choice of using the express courier. However, a fee was placed on this service to remove the impact in the business.
Transport costs reduced by more than 14% and service levels were unaffected.
“In this case it was possible to save costs in the third-party warehouse,” John Hogg said. “Even when you’re growing fast and you feel nothing can be done, there usually is a resolution. It just takes a fresh look and a focus on the cause”.
7-Aug-2008
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