A leading retail company, managing over 20 warehouses and a portfolio of 25,000+ SKUs, faced the challenge of optimizing its inventory placement strategy. The business needed to decide between centralized warehouse placement, regional warehouse distribution, and direct market delivery. Compounding the complexity were seasonal demand fluctuations, promotional activities, and the need for better cost transparency.

To address these issues, the company collaborated with Miebach to implement Total Cost to Serve (TCTS) Models, transforming their inventory placement strategy and delivering significant financial and operational benefits.

Complexity and Cost Pressure

Operating in a competitive retail environment, the company faced multiple challenges:

• Balancing Service Levels and Costs:
  With over 20 distribution centers, inventory placement decisions heavily impacted transportation costs, warehouse utilization, and service reliability.
  
  
• Lack of Cost Transparency:
  Understanding the full cost-to-serve from supplier to market was difficult, making it hard to optimize placement decisions.
  
  
• Seasonal and Promotional Variability:
  The need to adapt placement strategies for seasonal peaks and promotional campaigns was a recurring problem.
  
  
• Underutilized Central Warehouse:
  Valuable, slow-moving SKUs took up space in regional warehouses, while the central warehouse was underutilized.

Optimizing Placement with TCTS Models

The project centered around building a robust TCTS Model to evaluate and optimize inventory placement. This approach enabled the retailer to make data-driven decisions that balanced cost efficiency with service requirements. Key focus areas included:

1. Comprehensive Cost Analysis

The TCTS Model provided detailed visibility into costs at each step of the supply chain—from supplier to market. Costs for transportation, warehousing, and handling were broken down for centralized, regional, and direct-to-market options.

Insights Gained:

• Clear identification of high-cost supply chain segments.
• Comparison of cost-to-serve per SKU, customer, and channel.
• Scenario analysis for cost trade-offs between centralized and regional placement.
  
  

2. Scenario-Based Decision Making

Using the TCTS Model, the company evaluated placement strategies under different scenarios:

• Centralized Warehouse: Best for high-value, slow-moving products, optimizing space utilization and reducing inventory holding costs.
• Regional Warehouses: Preferred for fast-moving SKUs requiring shorter lead times.
• Direct-to-Market Delivery: Used for bulk shipments during seasonal promotions or campaigns to minimize transit times.

3. Dynamic Adjustment for Seasons and Promotions

The TCTS Model enabled mid-year adjustments in inventory placement, allowing the company to shift inventory between central and regional warehouses based on promotional activities or seasonal spikes.

Tangible Benefits

The implementation of TCTS Models delivered transformative benefits:

• Cost Transparency: The retailer gained a clear view of total supply chain costs from supplier to market, enabling better planning and decision-making.

• Transport Cost Savings: Double-digit percentage reduction in transportation costs were achieved by optimizing delivery routes and consolidating shipments.
  
  
• Improved Warehouse Utilization: The central warehouse was better utilized for high-value, slow-moving products, freeing up space in regional warehouses for faster-moving goods.
  
  
• Operational Flexibility: Seasonal and promotional adjustments in inventory placement improved responsiveness to market demands.
  
  
• Improved service levels with optimized placement strategies.
  
  
• Sustainable framework for ongoing cost and efficiency improvements.

 A New Era of Inventory Management

Through the implementation of TCTS Models, the retailer successfully transformed its inventory placement strategy. The project demonstrated the power of a data-driven approach to balance service levels, costs, and operational flexibility. By gaining cost transparency and enabling dynamic placement adjustments, the retailer unlocked significant efficiencies and competitive advantages.

This case highlights how strategic inventory placement can address complex supply chain challenges and deliver sustainable results for the future.

Stay tuned for more success stories on leveraging innovative tools and frameworks for supply chain optimization.

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