Client Case Study: Operational Efficiency

How can all of our locations become profitable?

The small tire (passenger car and light truck) distribution division of a major tire manufacturer was not meeting its corporate profitability goals. When analyzing each of the 40+ branch locations, some were profitable and some were not, and it was difficult to determine what factors were contributing to the performance of each branch.

Establish was engaged to first determine what factors had the most influence of the performance of each branch, and then to develop a standard operating procedure and the key performance metrics to be used to monitor the branches’ performances.

It was quickly determined that while there were general operating guidelines provided to each branch manager, each manager had the freedom to interpret those guidelines and then to manage the branch accordingly. In addition, there were no written or documented standard procedures and no metrics tracking productivity, utilization, inventory levels in relation to sales, etc. It was quickly determined that the utilization levels of each of the components (storage utilization, fleet utilization and labor utilization) that had the highest influence on the overall performance were not measured. While branch managers were evaluated on overall sales, they were not evaluated on the cost of those sales, even though some were completely unproductive.

Inventory was ordered by the branches based on anticipated needs, without the use of a formal inventory forecasting/ planning system, and manufacturers ‘ s tire specials. As a result inventory levels were high and contains a disparate amount of slow moving and obsolete tires.

Sixteen foot van trucks, as well as some pickup trucks for “hot” deliveries were used to deliver customer orders. They were on assigned routes that were delivered on a set schedule (every day, twice a week, etc.). The route drivers were left alone to run on their schedules without checking the utilization of the trucks. Two trucks could leave a branch only 25 percent utilization level to make deliveries when those deliveries could have been combined without impacting customer service performance levels. A dynamic routing package was recommended and implemented that analyzed the delivery requirements for each day and optimized the use of the trucks, the associated staff and the mileage driven.

Changes in the branches racking layouts and material handling equipment were also redesigned to improve the storage utilization, staff safety and overall labor productivity. In addition, changes such as increasing the gage of the wire decking to improve product stability, adjusting the aisle widths to improve efficiency, and creating a larger standard platform on the power lift equipment improved picker safety, increased the number units per pick, and reduced rack and product damage. Longer-term improvements to the order entry and warehouse management systems were also identified and quantified.

More importantly, however, a corporate inventory planning and management was obtained and inventory levels quickly controlled.

As a result of our multi-faceted approach, some unprofitable branch locations were closed and others became profitable.

The short-term improvements increased the operational efficiency and improved the profitability of each division by 10 to 15 percent, and the longer-term improvements contributed an additional 25 to 30 percent improvement.