7 Mini Case Studies - Successful Supply Chain Cost Reduction and Management

09/03/2021 Immersive Reader
7 Mini Case Studies: Successful

Supply Chain Cost Reduction and
Management
If you were to tell me that your company had never looked at its supply
chain costs and sought to deliver reductions, I would be mightily
surprised. On the other hand, if you told me your company hasn’t been
able to sustain any progress in supply chain cost reduction, I wouldn’t be
surprised at all.
Most companies begin with the best intentions to

achieve successful and sustainable supply chain cost
management, but somehow seem to lose momentum,
only to see costs increase again in short order.
The following seven mini case studies explore a few high-profile

companies that have managed to sustain their supply chain cost-reduction
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efforts and keep expenses under control. The challenges faced by these
organisations and the steps they took, may provide some inspiration for
successful long-term cost management within your organisation.
1. Deere & Company

Deere & Company (brand name John Deere) is famed for the manufacture
and supply of machinery used in agriculture, construction, and forestry, as
well as diesel engines and lawn care equipment. In 2014, Deere &
Company was listed 80th in the Fortune 500 America’s ranking and was
307th in the 2013 Fortune Global 500 ranking.
Supply Chain Cost Reduction Challenges: Deere and Company has a

diverse product range, which includes a mix of heavy machinery for the
consumer market, and industrial equipment, which is made to order.
Retail activity is extremely seasonal, with the majority of sales occurring
between March and July.
The company was replenishing dealers’ inventory weekly, using direct

shipment and cross-docking operations from source warehouses located
near Deere & Company’s manufacturing facilities. This operation was
proving too costly and too slow, so the company launched an initiative to
achieve a 10% supply chain cost reduction within four years.
The Path to Cost Reduction: The company undertook a supply chain

network-redesign program, resulting in the commissioning of
intermediate “merge centers” and optimization of cross-dock terminal
locations.
Deere & Company also began consolidating shipments and using break-
bulk terminals during the seasonal peak. The company also increased its
use of third-party logistics providers and effectively created a network that
could be optimized tactically at any given point in time.
Supply Chain Cost Management Results: Deere & Company’s supply

chain cost-management achievements included an inventory decrease of
$1 billion, a significant reduction in customer delivery lead times (from ten
days to five or less) and annual transportation cost savings of around 5%.
2. Intel

One of the world’s largest manufacturers of computer chips, Intel needs

little introduction. However, the company needed to reduce supply chain
expenditure significantly after bringing its low-cost “Atom” chip to market.
Supply chain costs of around $5.50 per chip were bearable for units selling
for $100, but the price of the new chip was a fraction of that, at about $20.
The Supply Chain Cost Reduction Challenge: Somehow, Intel had

to reduce the supply chain costs for the Atom chip, but had only one area
of leverage—inventory.
The chip had to work, so Intel could make no service trade-offs. With each
Atom product being a single component, there was also no way to reduce
duty payments. Intel had already whittled packaging down to a minimum,
and with a high value-to-weight ratio, the chips’ distribution costs could
not be pared down any further.
The only option was to try to reduce levels of inventory, which, up to that
point, had been kept very high to support a nine-week order cycle. The
only way Intel could find to make supply chain cost reductions was to
bring this cycle time down and therefore reduce inventory.
The Path to Cost Reduction: Intel decided to try what was considered
an unlikely supply chain strategy for the semiconductor industry: make to
order. The company began with a pilot operation using a manufacturer in
Malaysia. Through a process of iteration, they gradually sought out and
eliminated supply chain inefficiencies to reduce order cycle time
incrementally. Further improvement initiatives included:
Cutting the chip assembly test window from a five-day schedule,

to a bi-weekly, 2-day-long process
Introducing a formal S&OP planning process
Moving to a vendor-managed inventory model wherever it was
possible to do so
Supply Chain Cost Management Results: Through its incremental

approach to cycle time improvement, Intel eventually drove the order cycle
time for the Atom chip down from nine weeks to just two. As a result, the
company achieved a supply chain cost reduction of more than $4 per unit
for the $20 Atom chip—a far more palatable rate than the original figure of
$5.50.
3. Starbucks

Like Intel, Starbucks is pretty much a household name, but like many of
the most successful worldwide brands, the coffee-shop giant has been
through its periods of supply chain pain. In fact, during 2007 and 2008,
Starbucks leadership began to have severe doubts about the company’s
ability to supply its 16,700 outlets. As in most commercial sectors at that
time, sales were falling. At the same time, though, supply chain costs rose
by more than $75 million.
Supply Chain Cost Reduction Challenges: When the supply chain

executive team began investigating the rising costs and supply chain
performance issues, they found that service was indeed falling short of
expectations. Findings included the following problems
Fewer than 50% of outlet deliveries were arriving on time
Several poor outsourcing decisions had led to excessive 3PL

expenses
The supply chain had, (like those of many global organisations)
evolved, rather than grown by design, and had hence become
unnecessarily complex
The Path to Cost Reduction: Starbucks’ leadership had three main

objectives in mind to achieve improved performance and supply chain cost
reduction. These were to:
1. Reorganize the supply chain

2. Reduce cost to serve
3. Lay the groundwork for future capability in the supply chain
To meet these objectives, Starbucks divided all its supply chain functions
into three main groups, known as “plan” “make” and “deliver”. It also
opened a new production facility, bringing the total number of U.S. plants
to four.
Next, the company set about terminating partnerships with all but its most
effective 3PLs. It then began managing the remaining partners via a
weekly scorecard system, aligned with renewed service level agreements.
Supply Chain Cost Management Results: By the time Starbucks had

completed its transformation program, it had saved more than $500
million over the course of 2009 and 2010, of which a large proportion
came out of the supply chain, according to Peter Gibbons, then Executive
Vice President of Global Supply Chain Operations.
4. AGCO

Like Deere & Company, AGCO is a leading global force in the manufacture
and supply of agricultural machinery. The company grew substantially
over the course of two decades, achieving a considerable portion of that
growth by way of acquisitions.
As commonly happens when enterprises grow in this way, AGCO

experienced increasing degrees of supply chain complexity, along with
associated increases in cost, but for many years, did little to address the
issue directly, primarily due to the decentralized and fragmented nature of
its global network.
In 2012, AGCO’s leaders recognised that this state of affairs could not
continue and decided to establish a long-term program of strategic
optimisation.
Supply Chain Cost Reduction Challenges: With five separate brands

under its umbrella, AGCO’s product portfolio is vast. At the point when
optimisation planning began, sourcing and inbound logistics were
managed by teams in various countries, each with different levels of SCM
maturity, and using different tools and systems.
As a result of the decentralised environment, in which inbound logistics

and transport management were separate operational fields, there was
insufficient transparency in the supply chain. The enterprise as a whole
was not taking advantage of synergies and economies of scale (and the
benefits of the same). These issues existed against a backdrop of a volatile,
seasonal market.
The Path to Cost Reduction: Following a SCOR supply chain

benchmarking exercise, AGCO decided to approach its cost reduction and
efficiency goals by blending new technology—in the form of a globally
integrated transport management system (TMS)—with a commitment to
form a partnership with a suitably capable 3PL provider.
As North and South American divisions of the company were already

working with a recently implemented TMS, leaders decided to introduce
the blended approach in Europe, with commitments to replicate the
model, if successful, in its other operating regions.
With the technology and partnership in place, a logistics control tower was
developed, which integrates and coordinates all daily inbound supply
activities within Europe, from the negotiation of carrier freight rates,
through inbound shipment scheduling and transport plan optimisation to
self-billing for carrier payment.
Supply Chain Cost Management Results: Within a year and a half of

their European logistics solution’s go-live, AGCO achieved freight cost
reductions of some 18%, and has continued to save between three and five
percent on freight expenditure, year-on-year, ever since. Having since
rolled the new operating model out in China and North America, the
company has reduced inbound logistics costs by 28%, increased network
performance by 25% and cut inventory levels by a quarter.
5. Terex

Headquartered in Westport Connecticut, Terex Corporation may not be

such a well-known name, but if your company has ever rented an aerial
working platform (a scissor-lift or similar), there is a good chance it was
manufactured by Terex and dispatched to the rental company from its
transfer center in North Bend, Washington.
The North Bend facility is always full of lifting equipment. The company
makes most pieces to order and customizes them to meet customers’
unique preferences. Terex maintained a manual system for yard
management at the transfer centre, which generated excessive costs for
what should have been a relatively simple process of locating customers’
units to prepare them for delivery.
The Supply Chain Cost Reduction Challenge: A wallboard and

sticker system was a low-tech solution for identifying equipment items in
the yard at Terex. While inexpensive in itself, the solution cost around six
minutes every time an employee had to locate a unit in the yard. It also
required a considerable number of hours to be spent each month taking
physical inventories and updating the company’s ERP platform.
The Path to Cost Reduction: Terex decided to replace the outdated

manual yard management process with a new, digital solution using RFID
tracking. Terex decided to replace the outdated manual yard management
process with a new, digital solution using RFID tracking. Decision-makers
chose a yard management software (YMS) product, and then had the
transfer centre surveyed before initiating a pilot project covering a small
portion of the yard.
After a successful pilot, the company approved the solution for full-scale
implementation, replacing stickers, yard maps, and wallboard with
electronic tracking and digital inventory management. As of December
2017, Terex was planning to integrate the yard management solution with
its ERP platform to enable even greater functionality.
Supply Chain Cost Management Results: While the YMS cannot

reconcile inventory automatically with the Terex ERP application, it does
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at least provide a daily inventory count via its business intelligence

module. That alone has saved the labour costs previously incurred in
carrying out manual counts.
More importantly, though, the RFID-based unit identification and location

processes have saved the company around 70 weeks per year in labour
costs, by cutting the process-time down from six minutes, to a mere 30
seconds per unit.
6. Avaya
Avaya is a global force in business collaboration and communications
technology, and not so many years ago, was operating what, by its own
executives’ admission, was a worst-in-class supply chain. That situation
arose as the result of multiple corporate acquisitions over a short space of
time. The company was suffering from a range of supply chain maladies,
including a long cash-to-cash cycle, an imbalance in supplier terms and
conditions, excess inventory, and supply chain processes that were
inefficient and wholly manual.
The Supply Chain Cost Reduction Challenge: After Avaya

purchased Nortel Enterprise Solutions in 2009, the freshly merged
company found itself but loosely in control of an unstable and ineffective
supply chain operation. Aside from having too many disparate and
redundant processes, the company had multiple IT solutions, none of
which provided a holistic view of the supply chain or supported focused
analysis.
The Path to Cost Reduction: Avaya’s senior management team

realized that its technology solutions, which varied from being inadequate
to inappropriate, were causing many of its problems. The various
acquisitions and mergers had transformed Avaya into a different kind of
enterprise, and what it needed, rather than a replacement for all the
discrete systems, was one solution to tie them all together.
To that end, the company put its trust in cloud technology, which was
relatively immature at the time, and migrated all processes onto one
platform, which was designed to automate non-value-added activities and
integrate those critical to proactive supply chain management, namely:
Point of sale analysis

Procurement analysis
Supplier communication
Supply and demand planning
Inventory planning
Inbound and outbound logistics planning
Of course, the technology was merely an enabler, and to transform its

supply chain operation, Avaya embarked on a long-term, phased program
to standardize processes, initiate a culture change, invest in top talent, and
implement a system of rigorous benchmarking and KPI tracking.
Supply Chain Cost Management Results: Avaya’s program of

transformation took place over a period of three to four years, between
2010 and 2014. The path to cost reduction was a long one, but ultimately
successful.
By making a conscious effort to lead the enterprise into a new way of

thinking, change business culture, and unify technology under a single
platform, Avaya has improved inventory turns by more than 200%,
reduced cash tied-up in stock by 94%, and cut its overall supply chain
expenditure in half.
This dramatic turnaround also required the company to switch from a

preoccupation with improving what it was doing, to a process of
questioning what it was doing and why.
7. Sunsweet Growers
This final mini-case study in our collection, highlights how sometimes,
excess supply chain costs are not about warehousing and transportation,
but can be attributable to inefficiencies in manufacturing or production

and—often at the root of it all—forecasting and planning.
Sunsweet Growers is the world’s biggest producer of dried fruits and a

little over a decade ago, found that while it was managing distribution
operations well, high production costs were inflating end-to-end supply
chain expenditure.
The Supply Chain Cost Reduction Challenge: When the leadership

at Sunsweet looked into the company’s production cost issues, recognition
soon dawned that the distribution network was at least partly behind the
problems. As a result, the company looked at how it could redesign the
network to take out some of the production costs.
Later, it became apparent that although a redesign would yield some

benefits, one of the most significant issues was in the approach to demand
forecasting. Sunsweet was using a manual forecasting approach, with
spreadsheets being the only technology involved.
The inefficiencies of this approach proved not only to hamper effective

forecasting and production planning, but the knock-effect was an excess of
warehouses in the network—so forecasting proved to be both a driver of
production cost, and a key to improving the distribution network.
The Path to Cost Reduction: As in a number of the studies we’ve

explored here, technology played a large part in solving Sunsweet’s
problems. After evaluating some 30 different software solutions, the
company finally settled on a supply chain planning suite, and planned its
improvement program to make use of each of the solution’s modules in
sequence, allowing ROI to be realized in phases as each module was
implemented and leveraged.
At the same time, Sunsweet implemented a sales and operations planning

program (S&OP) that once established, enabled plant resource
requirements to be anticipated months—rather than weeks—in advance.
As the overall improvement plan passed through its five phases, positive
results accumulated and as hoped, software ROI reached 100% even
before the company completed its full implementation.
Supply Chain Cost Management Results: Of course, the objective of

Sunsweet’s improvement program was not merely to achieve a 100%
return on investment in its supply chain planning platform. The aim was
to reduce production costs, and although the company hasn’t published
hard figures to quantify the total financial gain, it has claimed the
following wins:
A 15 to 20% increase in forecasting accuracy

A reduction in overtime from 25% to 8% in production facilities
A 30% reduction in finished-goods spoilage
Number of warehouses in the United States cut from 28 to just
eight
A transportation cost-per-unit that remained static for two years
despite increased utilization of costly refrigerated transport and
rising fuel costs
From the achievements documented above, and highlighted in several

industry publications and articles, you don’t need to be too much of a
mathematician to deduce that cost savings would have been considerable.
Making Supply Chain Cost

Reductions Stick
Of course, the above case studies are merely summaries of the changes
these high-profile brands made to their supply chains. What can be seen
from these brief accounts, though, is that for an enterprise to make
significant and sustainable cost improvements, substantial change must
take place.
Deere & Company had to overhaul its network completely.

Intel had to shift an entire supply chain to a new and previously
unheard of strategy in its sector.
Starbucks had to shake up its third-party relationships and
increase production capacity.
AGCO had to invest in technology and collaborative partnerships

with external service providers.
Terex had to implement costly (but effective) RFID tracking
capabilities.
Sunsweet Growers needed a best-of-breed software solution, and
an S&OP program to improve forecasting and planning.
Avaya needed to change company culture, implement cloud
technology, rethink processes completely, and invest in the best
supply chain talent it could find.
At the same time, none of the changes took place overnight. Each of the
companies tackled issues in phases, effectively learning more as they went
along.
You Won’t Find Savings in the Comfort Zone
When it comes to making supply chain cost reductions that stick, you
should explore every avenue. However, at the root of high costs, there will
usually be one major factor requiring innovation, whether it’s the network,
inventory strategy, the working relationships with supply chain partners,
or some other element of your operation.
Seldom do companies make decent savings by whittling

away piecemeal at what seem, on the face of it, to be the
most pressing issues of the day (such as direct
transportation costs or supplier pricing).
If you want to see sustainable cost reductions, your company will need to
view the big picture from a new angle or two, and be prepared to step
outside of the comfort zone to which it will have become accustomed.
Editor’s Note: We originally published this post in June 2016 under the
title “3 Mini Case Studies: Successful Supply Chain Cost Reduction and
Management”. We have since expanded it to include four new case
studies, so that there are now seven mini case studies in total.
Best Regards,
Rob O’Byrne
Email: robyrne@logisticsbureau.com
Phone: +61 417 417 307

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09/03/2021 Immersive Reader

7 Mini Case Studies: Successful

Most companies begin with the best intentions to

The following seven mini case studies explore a few high-profile

1. Deere & Company

Supply Chain Cost Reduction Challenges: Deere and Company has a

The company was replenishing dealers’ inventory weekly, using direct

The Path to Cost Reduction: The company undertook a supply chain

Supply Chain Cost Management Results: Deere & Company’s supply

One of the world’s largest manufacturers of computer chips, Intel needs

The Supply Chain Cost Reduction Challenge: Somehow, Intel had

Cutting the chip assembly test window from a five-day schedule,

Supply Chain Cost Management Results: Through its incremental

Supply Chain Cost Reduction Challenges: When the supply chain

Fewer than 50% of outlet deliveries were arriving on time

Several poor outsourcing decisions had led to excessive 3PL

The Path to Cost Reduction: Starbucks’ leadership had three main

1. Reorganize the supply chain

Supply Chain Cost Management Results: By the time Starbucks had

As commonly happens when enterprises grow in this way, AGCO

Supply Chain Cost Reduction Challenges: With five separate brands

As a result of the decentralised environment, in which inbound logistics

The Path to Cost Reduction: Following a SCOR supply chain

As North and South American divisions of the company were already

Supply Chain Cost Management Results: Within a year and a half of

Headquartered in Westport Connecticut, Terex Corporation may not be

The Supply Chain Cost Reduction Challenge: A wallboard and

The Path to Cost Reduction: Terex decided to replace the outdated

Supply Chain Cost Management Results: While the YMS cannot

at least provide a daily inventory count via its business intelligence

More importantly, though, the RFID-based unit identification and location

The Supply Chain Cost Reduction Challenge: After Avaya

The Path to Cost Reduction: Avaya’s senior management team

Point of sale analysis

Of course, the technology was merely an enabler, and to transform its

Supply Chain Cost Management Results: Avaya’s program of

By making a conscious effort to lead the enterprise into a new way of

This dramatic turnaround also required the company to switch from a

but can be attributable to inefficiencies in manufacturing or production

Sunsweet Growers is the world’s biggest producer of dried fruits and a

The Supply Chain Cost Reduction Challenge: When the leadership

Later, it became apparent that although a redesign would yield some

The inefficiencies of this approach proved not only to hamper effective

The Path to Cost Reduction: As in a number of the studies we’ve

At the same time, Sunsweet implemented a sales and operations planning

Supply Chain Cost Management Results: Of course, the objective of

A 15 to 20% increase in forecasting accuracy

From the achievements documented above, and highlighted in several

Making Supply Chain Cost

Deere & Company had to overhaul its network completely.

AGCO had to invest in technology and collaborative partnerships

You Won’t Find Savings in the Comfort Zone

Seldom do companies make decent savings by whittling

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