Strategic Realignment Enabled by Distribution Optimization for Department Store Chain

Realizing the benefits of a continuous engagement, a leading department store chain partners with Chainalytics to strategically realign their distribution network in order to remain competitive in an evolving retail environment.

The strategic business challenge
As one of the most rapidly changing industries, retail is in an era of significant transformation. Storied and successful retailers discover their business models challenged like never before, with many of the top players suffering significant losses as they struggle to adapt. Include a generation raised on the internet and social media not conforming to retail buying habits of prior generations, combined with a pace of change faster than most analysts predicted, and the scramble to keep up proves even more difficult.

In the context of this challenging environment, a leading retailer recently undertook the daunting task of transforming its business. They required a clear-eyed look at how the business had evolved over the decades, where the market stood, emerging trends, and where current and future gaps existed.

The organization realized they would lose its competitive foothold without transforming its supply chain. Its very survival depended upon creating a distribution network that was responsive to shifting customer demographics and buying patterns (particularly e-commerce) and supporting rapidly growing strategic partnerships. Designing a responsive and efficient supply chain was a key component of the transformation the company undertook.

The supply chain design challenge
Prior to the analysis, the organization’s complex retail and e-commerce supply chain network had over 1,000 stores spanning 49 states and Puerto Rico, and it needed a significant network redesign in order to effectively compete in the evolving retail environment.

The company distributed products through several area logistics hubs (ALHs) and 11 store management facilities (SMFs). The question was, “Does this distribution model fit the emerging retail distribution requirements?”

The distribution network had a number of characteristics which defined their operational landscape:

  • Some distribution centers were constructed several decades earlier and sat on prime real estate, yet lacked adequate throughput capacity or, in some cases, the sufficient volume to justify the DC size.
  • Some DCs had inadequate capabilities for picking, packing and shipping to meet evolving store requirements and required large capital investments to reach required threshold capabilities.
  • Store replenishment schedule was set to bi-weekly, regardless of size.
  • Some stores lacked “back-room” storage and required off-site warehouses.
  • The ALHs processed imports as well as domestic shipments from vendor warehouses.
  • ALHs shipped to both the smaller store management facilities (SMFs) and to some stores after cross-docking inbound products.

Supply chain design analysis
The retailer partnered with Chainalytics for its expertise in large-scale supply chain design. Chainalytics analyzed over 200 scenarios and sensitivity tests to model the best approaches for meeting store service requirements, realizing savings, and determining the best consolidation opportunities.

The supply chain design effort evaluated:

  • Supplier-to-store inbound costs
  • The cost of transferring product from ALHs to SMFs
  • All fixed costs for maintaining ALHs and SMFs (including real estate, utilities, management, and insurance)
  • Costs for processing, handling, shipping, receiving, and picking and packing products
  • Last mile delivery costs required by the client’s private fleet to ship product from SMFs to stores (based on the store routing guide during both peak and non-peak season schedules)
  • E-commerce storage capacity demands and related costs

The ongoing “composite team”
Chainalytics was engaged to evaluate strategic models and ultimately determine the most effective model. The team evaluated several strategic models, with each offering operational advantages and disadvantages, and narrowed it down to a model that would position the organization to compete more effectively within the retail industry.

The team identified five outdated or geographically irrelevant facilities, as well as an opportunity for additional cost savings and performance improvements. To improve speed of delivery and reduce costs, the company shifted the main U.S. port of entry for foreign suppliers to an updated distribution center on the West Coast. This DC assumed a pivotal role in handling outbound West Coast deliveries for increased efficiency and savings over time.

The supply chain design initiative proved so successful that the client asked Chainalytics to provide managed analytics services to dynamically update its supply chain models with data and to design new models for emerging product lines which promote a “store within a store” presence at many of its retail locations.

Additional analytics were performed to determine the most effective reconfiguration of a distribution of a specialty product line of balance lower transportation costs against the increased inventory in the pipeline. Over 30 scenarios were evaluated to assist in identifying the most effective mode for distribution.

Chainalytics’ managed analytics services enables the client to proactively and continuously model and manage its supply chain as well as utilize industrial strength analytics to help make key supply chain decisions.

The organization recognizes the enormous challenges of effectively competing in retail in the 21st century and has made strategic moves such as incorporating cosmetics, coffee shops, salons, optical centers, portrait studios, and major appliances in its stores and online. But a well-run business must also possess an underlying distribution infrastructure that continually meets market demands. The client’s strategic moves ensure a high caliber distribution network defined by investment-grade analytics.

To learn more about how Chainalytics can help provide continuous network design analysis, contact us at info@chainalytics.com

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