DPO&Co- Daniel P. O'Reilly & Company

DPO&Co- Daniel P. O'Reilly & CompanyDPO&Co- Daniel P. O'Reilly & CompanyDPO&Co- Daniel P. O'Reilly & Company

DPO&Co- Daniel P. O'Reilly & Company

DPO&Co- Daniel P. O'Reilly & CompanyDPO&Co- Daniel P. O'Reilly & CompanyDPO&Co- Daniel P. O'Reilly & Company
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    • Home
    • Strategy Consulting
      • Industry Experience
      • Functional Expertise
    • Private Investing
    • BPO
    • M&A Financial Diligence
    • Our Team
      • US Team
      • Asia Team
      • Colombia Team
    • More
      • Contact Us
      • White Papers
      • Recent News
  • Home
  • Strategy Consulting
    • Industry Experience
    • Functional Expertise
  • Private Investing
  • BPO
  • M&A Financial Diligence
  • Our Team
    • US Team
    • Asia Team
    • Colombia Team
  • More
    • Contact Us
    • White Papers
    • Recent News

DISTRIBUTION & MANUFACTURING

Overview

Manufacturing and distribution goes hand in hand to deliver the best products to the hands of consumers as quick as possible with the most cost efficient method. The e-Commerce industry has revolutionized the distribution channel to same-day or next-day delivery. This covers not only dry goods, but also includes fresh produce and other non-durable items using cold chain logistics. Strategically locating the next distribution center and deciding to outsource or self-operate your 3PL are several of the key questions that our client has asked DPO&Co to help.

CASE EXAMPLE

6-Week Project: Developed a robust Total Cost of Ownership (TCO) model for a ~$6B grocery wholesaler, evaluating NPV of several scenarios to support rapid sales growth

Situation

  • Client was a leading food distribution company, providing national and independent grocery stores with various food & beverage products including fresh produce, dairy, dry and frozen items
  • The client was experiencing rapid growth >10% YoY in their niche organic frozen and cold storage categories in several regions
  • The client struggled to create a fact base to quantify the pros / cons of existing DC expansion vs. building a new DC in nearby regions
  • The client requested a regional optimization tool of existing DCs in the most urgent region, but that could be reconfigured to evaluate other regional DCs in in the future
  • Client hired DPO&Co to develop a regional optimization model that encompassed end to end supply chain cost in managing DC options for projected storage space growth while minimizing the TCO

Approach

  • Conducted key stakeholders interviews and established cost assumptions by collecting:

  1. 3 years’ sales projection & growth rate for perpetual / terminal value 
  2. Historical inbound / outbound trans rates and nodes for heat mapping
  3. Warehouse / DC labor, asset, and other operational costs
  4. Inventory allocation by product type, turnover, customer locations, etc.

  • Built a robust and flexible total cost model covering:

  1. DC operational cost (incl. labor, utilities, construction cost, etc.)
  2. Inventory holding cost
  3. Inbound / outbound trans cost

  • Built sensitivity analysis on spaces required and TCO by multiple factors to facilitate decision making: 

  1. Inv. turnover & storage to cube rate
  2. Organic turn improvement
  3. Inflation rate & perpetual growth rate
  4. # of FTE & labor hourly rate

Impact and Result

  • Developed an interactive and refreshable TCO model based on Net Present Value (NPV) for the largest region ($1B+ revenue) that can be adapted for other DC locations:

  1. Quantified each cost component and difference among scenarios
  2. Ability to easily change assumptions by a toggle, e.g. % labor based on space or sales. Inbound based on x-dock or direct shipment
  3. Ability to easily adjust model parameters, e.g. sales growth, labor yearly ramp-up, capital overhang duration, etc. with automatic flow through 28 tabs of the model
  4. Simple to use“Owners Manual” for how to get the most value possible from the model

  • Determined the most cost effective solution for regional optimization by using the model output to drive strategic recommendations, which options varied ~$95M-$150M in NPV
  • Highlighted qualitative and service level improvements involved in each scenario 
  • Developed distribution strategy with ~3,500 destinationscovered and 7 different scenarios

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