Transcript Slide 1

Calculating Your Cost to Deliver:
A Supply Chain Analysis Case Study
Are you currently considering supplying a new
retailer?
IGD Supply Chain Analysis can help you calculate
your cost to serve…
© IGD
What are the questions to ask?
Question
Where to find the info
1) Where is the product produced?
Internal
2) Where is the best docking point if importing?
SCA
3) What is your annual forecast in total/store
Internal & Retail Analysis
4) What is the forecast in pallets
Internal
5) Which depots within the network can take your product type?
SCA
6) Which will be the most cost effective depot for you to propose?
SCA
7) What is the cost of delivering into each depot?
SCA & Internal
8) What is the cost per case?
Internal
•
Done
Example cost to supply calculation.
– You are a supplier based south of London, UK and you currently supply Asda Wal-Mart. You
have secured a meeting with Tesco and have to calculate the potential cost to deliver to Tesco
in the UK.
– Your product is imported premium biscuits.
– Your cost to distribution can be calculated by answering the questions above, utilising Supply
Chain Analysis, as shown in the following slides…
© IGD
Calculating the Cost to Deliver – Questions explained
1. Where is the product produced?
–
In this example case study, we’ll assume the products are imported from
Germany.
2. Where is the best docking point (if importing)?
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You can use the map of the distribution network of Tesco [From Supply Chain
Analysis – Tesco profile – Warehousing – Depot Location Map] to quickly and
easily see that Tesco has the majority of their warehouses in the central and
southern parts of the UK, so a docking point in Kent for example would be the
most likely location.
–
As an existing importer into the UK, it is likely that you will use an existing
transport route to achieve cost and operational efficiencies, but from the
information on Supply Chain Analysis you can better calculate the onward
delivery costs from point of entry to final destination.
© IGD
UK Warehouse
Locations
– Note: In late 2007,
Tesco opened a new
RDC at Lichfield,
Staffordshire, a new
NDC at Goole in the
North-East, and a new
replacement site at
Livingston.
Subsequently, the
Dundee, Middleton 1,
Crick depots and the
Nettlehill, old Livingston
TDC and Trunking
station sites were
closed.
Source: Tesco, IGD Research 2008
© IGD
Calculating the Cost to Deliver – Questions explained
3. What is the annual forecast in total / per store
–
Initially you have to decide which formats you are going to propose to Tesco for
distribution and the number of stores in that format. This information is
available from IGD’s Retail Analysis [Retail Analysis – Tesco profile – Company
Summary – Portfolio statistics] .
UK Stores By Format
Format
Number of Stores Feb 2007
Space 000 sq ft
Average Store Size sq ft
147
10,252
69,741
Homeplus
5
175
35,000
Superstore
433
13,212
30,513
Metro/High Street
162
1,906
11,765
Express
735
1,562
2,125
1,482
27,107
18,291
One Stop
506
678
1,340
Total UK
1,988
27,785
13,976
Extra
Total Tesco
Source: Tesco
© IGD
Calculating the Cost to Deliver – Questions explained
3. What is the annual forecast in total / per store
–
If we assume that we are going to propose all Tesco Extra hypermarkets and all
Tesco superstores/supermarkets, that equates to 580 stores in total.
–
The current rate of sale (ROS) in Asda (a contract you already supply) is 14
cases per store per week, equating to 2 cases per day per store
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If we assume that the ROS will be similar, the annual forecast for Tesco will be:
–
Annual forecast = No of stores x cases per day x days of the year
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Annual forecast = 580 stores x 2 cases x 365 days = 423,400 cases
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Note: This will not be you final forecast as it needs to be put into full loads and full
pallets
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Cases per store annually = Daily ROS x No of days
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Cases per store annually = 2 x 365 = 730 cases
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Note: This assumes that the ROS for Tesco Extra and Superstores is the same.
© IGD
Calculating the Cost to Deliver – Questions explained
4. What is the forecast in pallets?
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–
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Annual no. of pallets = Annual Forecast cases/no of cases per pallet
In this example there are 54 cases on a pallet
Annual no. of pallets = 423,400/54 = 7,841 pallets to be delivered.
5. Which depots in the network can take the product?
–
IGD’s Supply Chain Analysis [Supply Chain Analysis – Tesco profile –
Replenishment - Throughput Volumes], shows you that your type of product is
typically designated by Tesco as slow moving ambient grocery:
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Fast-Moving Grocery (FMG) is defined as products delivered to store 4-7 days a week,
and will include products such as grocery, impulse, petcare, health & beauty and laundry
and paper.
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Slow-Moving Grocery (SMG) is defined as products delivered to store 2-6 days a week,
across the same product categories as above.
© IGD
Calculating the Cost to Deliver – Questions explained
5. Which depots in the network can take the product?
– Products categorised as product type ‘C’ (slow-moving grocery) within the s
table from [Supply Chain Analysis – Tesco profile – Replenishment – Throughput
Volumes]:
Location Name
Product Types
Stored
No. of Reserve Pallet
Locations
No. of Pick
Locations
No. of Live
Lines (SKUs)
Throughput
Cases (m)
C
17,557
5,316
4,303
81.5
C, E1, E2, E3, E4,
J, K
28,544
13,678
12,632
176.2
B, C, F
32,940
7,853
7,114
120.5
C
9,872
2,695
2,527
54.8
B, C, F
30,863
7,598
6,222
129
Fastway*
Fenny Lock
Magor
Middleton 1
Thurrock
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Comment: *Fastway Hanging figures are included in the Fastway numbers; excluding Lichfield, new Livingston
and Goole, but including Crick, Dundee, old Livingston and Middleton 1
– The above table is edited from a larger table to show all depots that will be able
to stock your product. You now have to decide which depot/depots would be the
most cost effective for delivery and calculate the associated distribution costs.
Source: Tesco, IGD Research 2008
© IGD
Calculating the Cost to Deliver – Questions explained
6. Which will be the most cost effective depot for you to propose?
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Supply Chain Analysis also shows you the regions and stores served from each
Tesco depot [Supply Chain Analysis – Tesco profile – Transport – Network]. It
has been edited to show all locations that service All UK (Region code 1):
Region Served
No. of
Vehicle Units
No. of
Trailer Units
No. of
Stores Served
Brackmills
1
3
40
1,473
Chesterfield
1
2
55
845
Coventry
1
1
19
843
Daventry 1
1
5
38
725
Daventry 2
1
1
26
843
Fastway*
1
2
37
848
Fenny Lock
1
68
235
1,582
Location Name
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Comment: *(Fastway Hanging figures are included in the Fastway numbers; excludes Lichfield and Goole, but
includes Crick, Dundee, Middleton 1, new Livingston and Nettlehill sites).
Source: Tesco, IGD Research 2008
© IGD
Calculating the Cost to Deliver – Questions explained
6. Which will be the most cost effective depot for you to propose?
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By combining the two tables summarised above from the Tesco profile on Supply
Chain Analysis you can determine that you can deliver nationally from Fastway
and Fenny Lock. However, when comparing the number of stores delivered into
from each depot (848 versus 1,582), Fenny Lock delivers into the whole estate
where as Fastway is only around half.
–
Fenny Lock would therefore probably be the initially proposed depot if you want
to try for distribution from a National Distribution Centre to reduce your delivery
costs. In addition, Fenny Lock has the highest throughput volumes delivered in
the Tesco network.
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Note: It is important to note that Tesco may want deliveries into several
Regional Distribution Centres, as opposed to just one National Distribution
Centre, and so the cost implications of having several delivery and storage
points also need to be calculated.
Source: Tesco, IGD Research 2008
© IGD
Calculating the Cost to Deliver – Questions explained
7. What is the cost of delivering into each depot?
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You have to make certain assumptions:
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From the profile [Supply Chain Analysis – Tesco profile - Replenishment – Level
of Stock] we know that Tesco’s average warehouse stock holding on grocery is
3.8 days and the average store stock holding is 6.9 days. We can therefore
work out what the initial shelf fill should be, and then how much you should
deliver based on a twice a week delivery.
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Initial order for shelf fill and warehouse stock, for 580 stores to satisfy 2 cases
per day - We have to make certain assumptions for initial shelf fill: 2 facings of
product, 2 cases back on shelf - Therefore 4 cases per store.
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–
Initial shelf fill will be = cases per store x no of stores
Initial shelf fill = 4 cases x 580 stores = 2,320 cases
© IGD
Calculating the Cost to Deliver – Questions explained
7. What is the cost of delivering into each depot?
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In-store stock = 6.9 days (from average Tesco ambient stock holding)
In-store stock = No of stores x cases per day x no of days stock held
In-store stock = 580 stores x 2 cases x 6.9 days = 8,004 cases
This is 8,004 cases for in-store stock for 6.9 days
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The warehouse stock held we know from the Tesco profile is 3.8 days, therefore
the initial warehouse stock will be:
Warehouse stock = No of stores x no of cases per day x no of days
stock held
Initial Warehouse stock = 580 stores x 2 cases x 3.8 days = 4,408 cases
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Initial order = shelf fill + in-store stock + warehouse stock
Initial order = 2,240 cases + 8,004 cases + 4,408 cases = 14,732 cases
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14,732 initial cases = cases/no of cases on a pallet = 14,732/54 = 273 pallets
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© IGD
Calculating the Cost to Deliver – Questions explained
7. What is the cost of delivering into each depot?
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–
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We assume that this will be delivered into Fennylock in full loads.
26 pallets per load (dependent upon weight this is usually full loads).
No. of loads = 273 pallets /26 pallets = 10.5 loads – you would probably round
this to 11 loads.
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What will the ongoing delivery pattern be? This will change dependent upon
season, however as an average:
If we assume that the stock holding will be 3.8 days, we can make the
assumption that deliveries will be approximately twice per week.
Total no. of cases = no. of stores x cases sold per store per week
Total no. of cases = 580 stores x 14 cases per week = 8,120 cases per week
Total no. of pallets = no. cases per week / cases per pallet
No. of pallets = 8,120/54 = 151 (rounded up)
Assume full loads of 26 pallets = 151/26 = 5.80 loads
This would be rounded to 6 full loads per week.
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© IGD
Calculating the Cost to Deliver – Questions explained
7. What is the cost of delivering into each depot?
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From your own internal departments you can find the distribution cost to Fenny Lock (which is
in Bletchley, Milton Keynes, Buckinghamshire) by sourcing a spreadsheet as per below;
No. Pallets
Cost/pallet
No. Pallets
Cost/pallet
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–
–
–
–
–
–
–
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1
2
3
4
5
6
7
8
9
10
11
12
13
£ 64 £ 32 £ 31 £ 31 £ 30 £ 29 £ 29 £ 29 £ 29 £ 28 £ 28 £ 28 £ 28
14
15
16
17
18
19
20
21
22
23
24
25
26
£ 28 £ 26 £ 26 £ 26 £ 26 £ 26 £ 26 £ 25 £ 25 £ 25 £ 25 £ 24 £ 24
If we assume an initial order of 11 full loads, and then an ongoing 6 full loads per week within
2 orders for the rest of the year, Initial order = 11 loads of 26 pallets
Cost to deliver = No of weeks x no of deliveries x no of pallets x cost per pallet
Initial cost to deliver = 1 week x 11 deliveries x 26 pallets x £24 = £6,864 for the initial order
Then we will have to make an assumption that for the remaining 51 weeks: 51 weeks at 6 full
loads per week - What is the cost?
Cost to deliver = No of weeks x no of deliveries x no of pallets x cost per pallet
Remaining cost to deliver = 51 weeks x 6 deliveries x 26 pallets x £24 = £190,944
The total cost to deliver for a year would be: Initial delivery costs + next 51 weeks cost
Delivery costs = £9694 + £190,944
Annual delivery costs = £197,808 – which is a significant proportion of the costs
associated with this customer.
© IGD
Calculating the Cost to Deliver – Questions explained
7. What is the distribution cost per case?
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Distribution cost per case = Cost of annual distribution/annual number of
cases
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First we need to work our how many cases would be delivered via full pallet and
full load ordering;
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Initial order in cases = no. of full loads x no. of pallets x no. of cases
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Initial order in cases = 1 wk x 11 full loads x 26 pallets x 54 cases = 15,444 cases
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For the rest of the year; Ordered in cases = no. of weeks x no. of full loads x
no. of pallets x no. of cases/pallet
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Ordered in cases = 51 weeks x 6 full loads x 26 pallets x 54 = 429,624 cases
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Total annual delivered will therefore be = 15,444 + 429,624 = 445,068 cases
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Cost per case = Cost of annual distribution/annual number of cases
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Cost per case = £197,808/445,068
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Cost per case = 44.4p per case. This would have to be built into the cost price .
© IGD
Calculating the Cost to Deliver
•
Points to remember
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This Supply Chain Analysis case study is illustrative and based on forecast
numbers
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The retailer may decide that this is not the correct depot for their requirements;
make sure that you calculate for several depots and then average or take the
highest potential cost
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You may not be able to deliver in full loads – but this definitely should be your
starting point and what you work towards – so calculate based on half loads also
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Your distribution costs and product costs might change over the year
–
The retailer may change the way it receives your product over the course of a
listing (stock cover, number of depots etc).
© IGD