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With Accenture’s help, this services company was able to resolve its complex supply chain issues and save tens of millions of dollars in inventory costs—while improving service levels.
In this way, saving money helped the company to progress on its journey toward achieving high performance. The client is a global oil-field services provider, whose offerings include drilling solutions.
Providing critical materials such as drilling fluids to global oil companies is no small feat. As oil producers continue to seek new sources of supply, they must establish drilling operations in increasingly remote and sometimes dangerous locations. In addition, components of drilling solutions are produced by only a few companies worldwide, most of which are located in North America and Western Europe, and therefore often require months for transportation to the drilling site.
This global supplier was all too familiar with these challenges. In the course of rapid global growth, the company had built an extensive supply network with warehouses and local salespeople as close as possible to customer locations around the world. While this arrangement had allowed the company to expand into many new regions, it also had resulted in complexity, high costs, poor visibility into available inventory, and very high stock levels.
As a result, the global supplier found itself saddled with as much as $1 billion invested in inventory. Given the company’s demand for capital in other parts of the business and the risk of $1 billion worth of products becoming obsolete while they were being transported and stored, the company knew it needed a new approach to supplying its global customers.
Based on more than 15 years of successful supply chain collaboration with Accenture, the client’s leadership saw the potential benefits of working with Accenture to solve this problem.
The Accenture team had a clear objective: Help the company dramatically reduce its global inventory levels while delivering excellent customer service, thereby enabling its continued growth. Based on Accenture’s deep experience with the global supplier’s operations and knowledge of the oil-field services industry, the Accenture team hypothesized that adopting a hub-and-spoke approach to distribution could achieve these goals effectively.
By aggregating supplies and serving a greater number of customers from one location, the model would reduce the impacts on the business of variability in supply and demand. In addition, the presence of large quantities of supplies in centralized hubs would allow spokes to store less stock, thereby ensuring fast customer service while reducing the company’s overall inventory levels.
The first step toward achieving these benefits was to develop a baseline of the company’s current supply chain operations, which would allow Accenture to model various scenarios and calculate their incremental value to the company. To build this baseline, the Accenture team met with the global supplier’s country managers and global supply chain operations staff, gathering 12 months of global, regional, and local data on product prices and costs, demand and supply, and transportation expenses.
Feeding the data collected into Llamasoft’s Supply Chain Guru, a sophisticated network optimization software tool, Accenture worked with the client to create a model of the company’s existing supply chain operations. This detailed baseline model would serve as the foundation for the scenario planning phase of the project, during which the Accenture team used Llamasoft to develop a wide range of possible scenarios for the company’s new distribution network and help the supplier choose the option that would generate the greatest value.
However, devising a new distribution model was only part of the solution to the company’s inventory and supply chain challenges. Accenture also suggested a host of organizational changes and capability improvements to drive substantial and ongoing results.
Working with Accenture, the global provider was able to develop a new supply chain strategy that could deliver substantial benefits to the growing business. In total, Accenture estimated that the proposed hub-and-spoke model could generate one-time and recurring savings in the tens of millions of dollars.
Beyond these cost savings, the model promised to boost the company’s competitive strength by cutting lead times, improving customer service and fortifying its ability to adapt its product mix to changes in the marketplace. These achievements would be especially remarkable given the daunting challenges facing the company’s global supply chain.
By drawing on our deep industry knowledge and supply chain experience, Accenture was able to not only devise a more cost-effective and efficient way for the global supplier to serve its customers, but also to illustrate a potential new route to high performance.
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