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By streamlining their supply chain, Virgin Media shrunk inventory value and operating expenses by about 19 percent—while improving customer satisfaction.
Cost pressure is a fact of life for virtually all companies around the world, but it is especially acute in the highly competitive communications industry.
No one knows this better than Virgin Media, the leading entertainment and communications company in the United Kingdom, which provides a ‘‘quad-play’’ offering of broadband, television, mobile telephone and fixed-line telephone services. The $10 billion company has been at the forefront of meeting consumer demand for innovative communication and entertainment services, and has invested to grow as well as reduce existing customer churn by improving performance across key customer touch points including installation, call handling, billing and provisioning. These efforts have helped the company increase market share and boost revenue even in a difficult economy.
However, despite these advances, Virgin Media also recognized that to continue to be competitive it had to reduce its cost structure. The company was formed by the merger of three companies (NTL, Telewest and Virgin Mobile) which, while resulting in an organization with extensive product and service offerings and substantial reach, also created considerable operational complexity and redundancy. Thus, in November 2008, the company initiated a restructuring plan designed to create a fully integrated, customer-focused organization and, in the process, generated cost savings of more than £120 million (nearly US$188 million) by 2012.
One of the biggest areas of redundancy and complexity, and a major target of the cost reduction program, was Virgin Media’s supply chain—which is responsible for providing technicians with the items they need to perform their daily work. As a result of the merger that created the company, Virgin Media had a number of overlapping and redundant supply chain processes and entities. The company operated 12 warehouses across the United Kingdom, as well as 62 “installation stores” and more than 1,000 locker boxes—facilities that stored the parts and materials for access by engineers in the field. This multiplicity of facilities, as well as a lack of integrated supporting systems, made it very difficult for Virgin Media to track its inventory and often resulted in considerable unnecessary transfer of parts among facilities—all of which added up to an unacceptable combination of excessive time and high costs.
As part of the cost-reduction program, the company determined it needed to consolidate and streamline the supply chain to reduce the need to transfer parts between the different facilities. The program would also enable Virgin Media to track assets by serial number, regardless of where they were in the supply chain. This approach would also serve the wider strategy to make the field more efficient and customer responsive, enabling Virgin Media to route its engineers in real time with the right kit to do the job.
Under the new network, Virgin Media would consolidate its 12 UK warehouses into a single, 280,000-foot , central distribution center—affectionately dubbed “The Big Red Shed.” The installation stores and locker boxes would be replaced by 52 field storage facilities, which field technicians could use for meeting and for collecting materials required to fill customers’ orders each day. The plan also included a holistic, multiyear outsourcing arrangement in which Kuehne + Nagel, one of the world’s largest logistics providers, would take the place of 40 logistics partners—significantly streamlining the supply chain. Kuehne + Nagel would also operate a dedicated, Virgin Media branded transportation fleet to shuttle back and forth between the field storage locations and the Big Red Shed.
Virgin Media executives approved the new design and, with Accenture’s help, began implementing it across the company’s supply chain. Working closely with Virgin Media and Kuehne + Nagel, Accenture designed new, lean processes and a new systems architecture to support the improved physical supply chain network.
Within this IT landscape are various components that not only support parts forecasting and replenishment, but also enable Virgin Media to track its parts at the serial number level across the end-to end supply chain. This ability allows Virgin Media to optimize parts distribution and reduce the chances of high-value parts (such as set-top boxes) to go missing. Accenture worked closely with Virgin Media and various other third parties to make this happen.
Reduced inventory shrinkage by nearly 100 percent
Dramatically cut average network outage time
Shrunk inventory value and operating expenses by approximately 19 percent each
Improved on-time availability by nearly 11 percent
Furthermore, the company’s new approach to supply chain management has helped it boost its net promoter score—a measure of customer satisfaction—by approximately 22 percent, while eliminating 350,000 travel miles and recycling 480 tons of cardboard annually.
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