St. Onge was recently asked to perform a typical network analysis for a manufacturer of small industrial parts. We were asked to determine if a forward distribution center in addition to their flagship facility attached to their plant was justified based on freight savings and service improvements. The client distributes the product through a nationwide network of 115 distributors. These distributors represent and maintain inventory for not only our client but other manufacturers in the industry. The result of the study was that a forward DC was not justified in the face of the incremental inventory and facility costs such a strategy would entail.
However, we did uncover significant savings for the client. Shipments from the main DC to distributors is a mix of parcel ground and LTL freight. Through an analysis of a 12-month shipment history, we observed that most distributors place and receive multiple orders in the same day. In some cases, they received 10-15 parcel shipments in a given day. It turns out that orders are transmitted to the manufacturer throughout the day as soon as the need is identified. And the manufacturer processes the orders as they arrive with no consolidation even though most orders are not time sensitive. As a result, the warehouse picks and processes a large number of small orders, prepares each one for parcel or small freight shipment, and the customer must receive multiple small orders from the same source daily.
Using the 12-month shipment history file, St Onge was able to accurately quantify the freight savings associated with various order consolidation strategies. We considered daily order consolidation as well as 2 & 3-day order windows in which customer orders were queued until the customer’s next scheduled ship day. Based on the manufacturer’s service level agreements with distributors, they decided to ship to most distributors 2-3 times per week. This strategy resulted in a 5% savings for freight to distributor in addition to efficiency gains within the warehouse picking and shipping departments, as well as more efficient order receipt at the distributor.
This implementation of order consolidation can be transparent to the customer and the warehouse operation, but may require adjustments to WMS or other operational systems. Order consolidation is low risk with potential for significant gains, however the strategy that you choose needs to maintain or improve customer satisfaction.
—Dave Wheeler, St. Onge Company
