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CHEP Cost Model Quantifies Benefits of Collaborating with Customers to Produce Supply Chain Solutions

CHEP Cost Model Quantifies Benefits of Collaborating with Customers to Produce Supply Chain Solutions

CHEP was in a perfect position to play an innovative and active role in the logistic services market, owing to its interactions will all the key actors in the Supply Chain. A project was launched to develop a Cost Model to quantify and demonstrate the benefits of collaborative supply chain solutions and have it validated by customers.

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CHEP was in a perfect position to play an innovative and active role in the logistic services market, owing to its interactions will all the key actors in the Supply Chain. A project was launched to develop a Cost Model to quantify and demonstrate the benefits of collaborative supply chain solutions and have it validated by customers.

BUSINESS NEED – CHEP saw a need to understand how different ordering processes and Route-to-Market designs impact the supply chain costs of both suppliers and retailers. The company also wanted to identify ways to provide both the highest service levels and lowest global costs. A primary goal was to find opportunities for end-to-end logistics cost savings. 

SOLUTION – CHEP retained Miebach Consulting, a leading international supply chain consulting firm, and worked with a specialist supply chain cost measurement firm, Incept. To produce a model, the team determined physical flows of different designs to evaluate, defined relevant cost drivers and productivity rates, and proposed a set of sensitivity analysis scenarios. The model was validated by the End-to-End Optimisation working group of CHEP’s Customer Advisory Panel.

BENEFITS – The model proved that collaborative supply chain solutions have a big potential for savings for both manufacturers and retailers and, as a consequence, for the whole supply chain. The opportunities for cost reduction as a result of Route-to-Market collaborative solution designs were calculated, identifying opportunities for end-to-end logistics cost savings between 30% and 40%.

Route-to-Market Collaborative Solutions Can Cut Costs by up to 40% 

CHEP is a very well-known leading global provider of pallet and container pooling services for the Consumer Goods, Fresh Food, Manufacturing, Aerospace, Automotive and Chemical industries.  Since the company interacts with all the key actors in the Supply Chain, CHEP wanted to play an innovative and active role in the logistics services market by developing a Cost Model to quantify and demonstrate the benefits of collaborative supply chain solutions, and have it validated by a select group of prominent customers. 

The CHEP Customer Advisory Panel (CAP) comprises about 30 key European manufacturers, retailers and Logistics Service Providers. Within this panel, there is a working group on “End-to-End Optimisation” in which participating companies play an active role in looking for collaborative supply chain designs. The working group was very well positioned to play the leading role in supporting the design of the Cost Model and validating the potential gains identified as a result of implementing collaborative Route-to-Market solutions.

For this project, CHEP retained the services of Miebach Consulting, a leading international supply chain consulting firm, which aids clients in engineering supply chains that lower costs and maximise service levels. The purpose of the Cost Model was to understand how different ordering processes and Route-to-Market designs impact the supply chain costs of  suppliers and retailers, and to work out  how to provide both the highest service levels and lowest global costs.

In this assignment, Miebach worked with Incept, a specialist supply chain cost measurement firm, which used a proprietary modelling tool called Network Value Model. Considering the combined supply chain of manufacturers and retailers, the team determined which physical flows of the different designs to evaluate, defined the relevant cost drivers and productivity rates and proposed a set of sensitivity analysis scenarios. The structure of the model was built to allow the consideration of:

5 Route-to-Market scenarios:

  • Stand-alone manufacturer and retailer
  • Transport pooling with multiple collection points
  • Transport pooling with a multi-manufacturer shared distribution centre
  • Multi-manufacturer to multi-retailer shared distribution centres
  • Individual manufacturer factory to a multi-retailer shared distribution centre

3 operational scenarios:

  • Without customer order synchronisation
  • Customer order placed same day but not rounded to Full Truck Load
  • Vendor Managed Inventory rounding to Full Truck Loads 

2 retailer models

  • Stock
  • Cross Dock

The resultant model was validated by the “End-to-End Optimisation” working group of the CHEP Customer Advisory Panel, and the scenarios were refined and finally approved.

The opportunities for cost reduction as a result of Route-to-Market collaborative solution designs were calculated, identifying opportunities for end-to-end logistics cost savings between 30% and 40%. It is clear that the level of savings depends on the size of orders – the smaller the order the bigger the savings through collaboration.

The model proved that collaborative supply chain solutions have a big potential for savings for both manufacturers and retailers and, as a consequence, for the whole supply chain. Participant companies defined their individual next steps in a discretionary basis, with the global objective of promoting collaboration with business partners internally and to keep pushing the agenda within each company.

In the next phase, CHEP is aiming to promote the implementation of these findings in a Pilot Group for the European region, and further refine the model for involving further retail channels and specific applications.