Creating a world-class route to market in a developing country case study

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Courtesy of LLamasoft, Inc.

Global consumer goods manufacturer seizes untapped potential in Middle Eastern market by redesigning network and planning routes to maximize direct store sales

Challenge
A global fast-moving consumer goods (FMCG) company operating in more than 160 countries wanted to maximize retail channel sales opportunities and effectiveness and reduce costs in the Saudi Arabian market. Retail network stores received product from direct store sales (DSS) (40% of total sales) as well as through third-party distributors (non-direct store sales) (60 percent of total sales). Many retailers were buying from both routes to market: DSS from the FMCG company representatives and independent van sales top-up from third-party distributors. The FMCG company believed that their DSS capability could be better developed to provide greater visibility of end-sales, improved efficiency and cost savings.

Challenges to these objectives were many in this region; Saudi Arabia is a huge country of 870,000 square miles and 30 million inhabitants. Population is concentrated in three main cities which are separated by large expanses of desert, making transport costs a major cost factor. Most retail outlets are unsophisticated small independent stores. These conditions coupled with the extreme climate and highly traditional religious culture created a singularly challenging environment for a network design project.

The company enlisted LLamasoft partner Solving Efeso to identify the optimal regional DC size and locations and plan sales territories and routes for how to best fulfill orders across the country through DSS.

Solution
The team set about building a Supply Chain Guru baseline model in order to visualize the distributor network and identify any site selection inefficiencies. Network optimization showed that the set of stores across the country could be served within desired service times by adding three distribution centers (DCs) and two wholesale stocking points to the network. Through reduced transport costs, these additional DCs would also lead to a small reduction in overall network costs.

Next, the team initiated a customer outlet profit contribution analysis on 12,000 of the 21,000 total outlets in the network to review and prioritize sales activities and time required to achieve sales potential. The analysis showed that over 90 percent of the outlets make a positive contribution with exclusive DSS. This supported the company’s hypothesis and suggested a need to rapidly increase outlets with exclusive DSS coverage from 7,000 to 11,000 to maximize overall profit opportunities.

Next, the team initiated a customer outlet profit contribution analysis on 12,000 of the 21,000 total outlets in the network to review and prioritize sales activities and time required to achieve sales potential. The analysis showed that over 90 percent of the outlets make a positive contribution with exclusive DSS. This supported the company’s hypothesis and suggested a need to rapidly increase outlets with exclusive DSS coverage from 7,000 to 11,000 to maximize overall profit opportunities.

Finally, a sales territory planning project using Transportation Guru was undertaken in order to allocate each retail outlet to an individual salesman to maximize relationship building, a key factor in the Saudi culture. Salesmen also needed territories divided into day-by-day call routines to provide most efficient area and allow for flexibility to handle unscheduled customer calls. Results from this exercise included number of routes, stops and distance travelled per depot.

Sales territory optimization process:

  1. Build Transportation Guru model and optimize routes
  2. Generate journey plans by DC (e.g. call frequency)
  3. Determine required resource per region (current/ future using the migration & expansion plan)
  4. Allocate resource to regional and local territories based on route characteristics (urban/ rural) and resource capabilities
  5. Implement routing and territory planning into operations

Results
Supply Chain Guru and Transportation Guru supported analysis which showed the FMCG company how to redesign its supply chain to maximize retail channel effectiveness. The network redesign allows more stores to be reached directly within reasonable distance and travel time. The transportation route planning allows sales representatives to effectively serve their territories for direct van sales. These changes are expected to lead to a substantial increase in profit, as supported by a store-level profit contribution analysis based on revenues and detailed cost-to-serve calculations.

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