In this article we provide an overview of a recent engagement to illustrate how companies can address and overcome inhibiting supply chain and distribution challenges to drive value creation opportunities.
After being carved-out from a major “big box” U.S. home goods retailer, our client, a specialty retailer of home goods and seasonal items across the eastern U.S., retained Hilco Performance Solutions (HPS) to assist with increasing distribution capacity for sales to achieve $100 million in incremental revenue. In a tight time frame, leading right up to the start of the next seasonal crunch, the HPS operational team focused on the Company’s owned distribution center and transportation operations to ensure the store network could meet growing consumer demand. The engagement involved deployment of a hybrid onsite/remote team of seasoned HPS consultants, who applied analytics and Lean Six Sigma process improvement techniques to eliminate bottlenecks, reduce downtime, optimize scheduling, and accelerate the flow of goods while adapting to several challenges brought on by COVID-19, including a smaller and constrained warehouse labor base and increasing costs.
The Company’s predicament arose largely from a decision several months into the COVID-19 pandemic by its then owner, a publicly traded home goods retailer, to carve out the 80-store retail footprint and one of two distribution centers into a standalone business. As the domestic economy exhibited increasing consumer demand for home goods under the lockdown provisions, our client struggled to receive goods, unpack items on racks in the distribution center, and then distribute inventory to stores to ultimately be put on shelves. With high prospects for continuing demand of its core and expanding seasonal product lines and visible constraints, the retailer recognized it would lose sales opportunities and be unable to support new store openings unless it addressed its distribution center operations before the next seasonal ramp-up period.
As part of the larger retailing network before the carve-out, our client supplied its retail footprint from two distribution centers. However, the newly separated entity had only one distribution center for receiving imported goods from suppliers (mostly from Asia) and servicing a growing footprint of stores. This challenge, along with other impacts of COVID-19 such as shortage of labor and issues in attracting, recruiting, and retaining employees, exacerbated the situation. This led to a supply-demand mismatch as, although there may have been inventory available in the warehouse, it was not properly organized. In turn, this led to delays in inventory being sent from the warehouses to retail stores, ultimately leading to stock-outs at stores and lost revenue opportunities. Additionally, the single distribution center had only 40 outbound shipping doors supplied by its conveyor system; this, combined with the existing process’s ability to only load one truck per-bay per-day, meant that, at most, 40 trucks could be loaded each day. This was a hard constraint to the throughput capacity of the facility, a limit that would not meet the peak demands of the retail stores.
Given these factors, our client required a deeper, objective assessment of its operations to determine the root cause of the revenue shortfall, measure potential impacts, and understand the levers that could be pulled for improvement. Furthermore, it needed to understand the cost, benefits, and timeline of the improvement process. With only five months remaining to “up its game” before the next primary shopping season, the company retained HPS to conduct a deep-dive into its ailing transportation and distribution processes.
By working to obtain a highly granular view of the distribution center including those processes, personnel, systems, data and information, equipment, and facilities directly and indirectly associated with the core processes, HPS was able to validate the missed revenue opportunities. Working closely with the Company’s warehouse management and associates, our team implemented Lean and 5S approaches to expand the warehouse’s throughput capacity to retail locations. This included:
- Inbound process changes involving team unloading, visual controls, team put-away techniques
- Outbound process conversion to a 3-wave picking / shipping approach
- Support process changes involving the addition of a dedicated deadwood removal crew, pallet management processes, and vehicle / battery management
HPS ran numerous pilots to demonstrate the changes in actual terms, adjusting the plan as needed, while simultaneously training and working side-by-side with employees. While there was strong support of the effort from the Company’s top management, there was also significant change for middle management employees to process, particularly as it was essential for them to also remain focused on their day-to-day job responsibilities. Our HPS team of seasoned operational consultants across retail, distribution, and transport operations, continuously supported the effort, working both remotely and on site with the Company’s warehouse team as COVID-19 restrictions permitted.
Although our client initially felt it would be necessary to implement the project in a staged manner due to competing cash priorities, the efficiencies generated via execution of the HPS plan enabled the effort to become self-funded in a period of just a few weeks’ time, generating a return of 13:1. All work was completed and transitioned to internal teams in only 16 weeks, a highly accelerated timeframe.
While the plan did not require any additional investment in a new distribution center, equipment, software or 3PL services, it is forecasted to result in an incremental $100 million of inventory at retail through the distribution center, an increase of 32%. This will include reversing the trend of lost sales due to stockouts and enabling greater sales growth from existing and new stores. Additionally, the effort is expected to lead to a sustainable process change that will increase warehouse throughput capacity to retail stores by more than 50% and over 52,700 cartons per day, with scalability beyond these levels as well. Importantly, the process changes have also allowed the distribution center’s management to maintain a well-organized, efficient, and safe work environment.
Our main client contact, the company’s Vice President of Supply Chain and Logistics, said of the initiative, “My team and I found Hilco Performance Solutions very professional and the engagement experience extremely eye-opening. We are quite excited to implement the HPS study recommendations and are confident in their ability to take us to the next level.”
If your business or a business in your portfolio is experiencing bottlenecks, excessive downtime, scheduling issues, or an inefficient flow of goods process, within its distribution, warehousing or transportation center operations, we encourage you to reach out to the HPS team. You’re not alone, and we are here to help!
Hilco Performance Solutions (HPS) consists of cross-functional manufacturing experts in the areas of Operations, Supply Chain, People, Mergers and Acquisitions, and Commercial, advising clients toward sustainable revenue growth and cost reduction. By combining advisory experts with reputable industry veterans, Hilco provides the right talent to get the job done. While many management consulting companies focus on strategy and sharing leading theory, Hilco Performance Solutions focuses on action, working in the trenches with our clients and translating strategy into results.
Dan Ginsberg is a Managing Director at Hilco Performance Solutions
Dan brings over 20 years of experience in consulting and leadership, supporting company management, private equity sponsors and other key stakeholders in realizing EBITDA and cashflow results through operational and strategic performance improvement initiatives. He has a track record of more than 250 projects with ~150 clients and ~100 sponsors, delivering over $900 million in measurable benefits and much more in exit values. Contact Dan at 847-504-2453 or firstname.lastname@example.org
Charvi Gupta is an Associate Director at Getzler Henrich (a Hilco Global company)
Charvi has over seven years of experience across M&A, corporate turnarounds, financial and operational restructuring and bankruptcy situations where she has focused on transaction execution, due diligence, financial modeling and data driven analysis. She has also worked with companies to address liquidity issues, develop cost reduction plans, implement process improvements and improve profitability. Contact Charvi at 212-697-2400 or email@example.com