Distribution Network Optimization: Repairing Cracked Supply Chain Design
After its acquisition by Belron SA in 2007, vehicle glass manufacturer Safelite polished its supply chain to a shine. Now it clearly sees increased distribution efficiency, enhanced customer service, and lower costs.
Trouble begins with a chip in a car windshield—an inconvenient blemish until it begins to spread. Before long, it fractures and fissures its way into a serpentine crack that spans the line of vision. That’s when Safelite AutoGlass saves the day.
The Columbus, Ohio, company provides mobile vehicle glass repair and replacement services to more than 95 percent of the U.S. population in all 50 states. Like any automotive service parts organization, having the right parts stocked in the right places with the right quantities is a mission-critical imperative.
In 2007, Belron SA, the world’s largest vehicle glass company, with operations in 34 countries, acquired Safelite and three other business units under the corporate umbrella. The merger precipitated an audit of the new organization’s supply chain in an effort to leverage speed and inventory availability as a competitive differentiator. One year later, Belron/Safelite launched an organization-wide effort to transform its supply chain into a core competency.
"Safelite set out to grow its business," says Dino Lanno, senior vice president of supply chain for Safelite AutoGlass. "Its supply chain was at capacity, however, and not an enabler for growth. Its objectives were to drive customer satisfaction and move inventory closer to customers.
"The company wanted to begin its realignment by looking at demand, then building the supply chain around that," he adds. "Safelite’s customers have rigid requirements, and demand quick and reliable service.
"Our realignment began with the customer, a retail strategy, and a growth plan around 2015," continues Lanno. "We strategically analyzed where our business would be in terms of unit throughput. We asked, ‘Where are sales today? Where will sales be tomorrow?’ Because we’re an auto parts business, there’s always a bigger market share where cars are."
Safelite began identifying future demand trends and inventory needs. Its objective was to determine where it should locate its warehouse and distribution assets, and how it could optimize its network to lower glass acquisition costs, reduce transportation expenses, and better position the company to make products available for North American customers.
The project comprised four parts:
- Closing Safelite’s single distribution center (DC), located in Enfield, N.C., adjacent to its primary U.S. manufacturing facility, and opening new DCs in Ontario, Calif.; Braselton, Ga.; and Montreal and Airdrie, Canada.
- Harmonizing supply chain models between the United States and Canada.
- Increasing warehouse capacity on both sides of the border.
- Implementing cross-border shipping functions.
The decision to eliminate Enfield as a DC location was predicated by a process of modeling demand. Using CAST software, a PC-based application developed by South Africa-headquartered Barloworld Supply Chain Software for global supply chain modeling, network design, and optimization, Safelite examined glass and parts acquisition costs, transportation spend, and product need by location to determine optimal solutions.
As Safelite adapted its supply chain, acquired companies, and internalized these changes, it began looking at key performance indicators (KPIs). The company populated input regarding customers, stores, labor rates, freight lanes, and other criteria into the modeling application and matched that to current KPIs to provide contrast with its existing network.
"We predicted operating costs," explains Lanno. "We posed scenarios, such as ‘If we uncouple all our warehouses, where should we site them?’ and questioned whether we would need more warehouses. We also uncoupled DC location variables, taking all constraints out of the equation and letting the tool tell us where to site them."
Part of Safelite’s distribution transformation was determining how to purpose facilities in its hub-and-spoke network. The company employs three location types: warehouses that stock products that are selling but have little depth; distribution centers that have inventory depth to service warehouses; and hubs that operate similar to DCs but carry less product.
Modeling future demand enabled Safelite to determine the types and number of facilities it needed, and where.
"On the East Coast, Atlanta was the best site," says Lanno. "Then we determined the best location in that area. We knew we wanted to be on the I-85 Corridor. We looked at city and state governments, taxes, and labor, and settled on Brazelton."
The company engaged a similar due diligence process on the West Coast, ultimately selecting Ontario.
To increase demand responsiveness and better serve customers, Safelite decided to relocate and expand 31 new warehouses, bringing the total count to 87. Of that, there are two primary U.S. distribution centers in Brazelton and Ontario, and 11 facilities designated as hubs. Between 2008 and 2010, Safelite quadrupled its distribution capacity to 600,000 square feet, with a corollary 33-percent increase in SKU count.
Expanding its distribution footprint allowed Safelite to achieve considerable transport savings and customer service improvements. It has eliminated about 1.7 million haulage miles between DCs and warehouses, while simultaneously reducing lead times, carbon emissions, service level impacts, claims, and shrinkage.
Specifically, the opening of Safelite’s West Coast distribution center took one million miles out of the annual transportation budget. Implementation of cross-border shipping from western Canada to U.S. locations in the Pacific Northwest is expected to reduce mileage to those warehouses by half. That’s just for starters.
"Pick-per-man-hour and package density have both improved, as has reverse logistics," says Lanno. "We can also pay more now for transportation if necessary because we’re paying for quality and reliability. We manage that by accurately forecasting demand, then executing on it."
With more inventory and warehouse space in the system, Safelite made it a point to modernize new and existing facilities and equip them with sophisticated technologies to increase efficiency. In Airdrie, for example, the company introduced Belron’s global warehouse management system (WMS), which automates inventory control and operational functions. The WMS will eventually be rolled out to all U.S. and Canadian distribution centers and warehouses.
"When we were private-equity owned, we did not invest in the supply chain," says Lanno. "We’ve been able to grow market share because we have the best parts in inventory—parts competitors don’t have. Consequently, there is a natural product cost improvement simply because we don’t have to buy from outside."
To date, the automobile glass manufacturer/supplier has demonstrated notable results among its 380 retail stores and in the 202 markets it serves. In two years, Safelite has achieved the following:
- Reduced adverse buys—products sourced from competing suppliers rather than internally—by more than 50 percent.
- Cut scrap by 30 percent.
- Improved the proportion of retail customers served same-day/next-day by seven percent.
- Increased retail sales 17 percent, retail profit 39 percent, wholesale sales 11 percent, and wholesale profit 29 percent.
That Safelite’s retail and wholesale profit margins are growing faster than sales suggests the company has been successful in squeezing out ancillary spend—a testament to greater supply chain efficiency and economy.
Resisting the recessionary and acquistions impulse to contract, Safelite conducted necessary due diligence and supply chain modeling to justify an appropriate course of action. The company is now leveraging what it has invested in and built to generate value for its customers. For Lanno, Safelite’s successful transformation crystallizes into one lucid point.
"If supply chain is not top of mind, you are only doing things for the sake of doing them," he says.