From loss-making to break-even in a year
Our client, a mobile phone retailer, ran its warehousing and logistics operation from premises in the West Midlands gained through an acquisition made five years previously. This was the major cost centre of the organisation and the client had been unable to significantly improve it for two years.
We had to understand the cost drivers in the business and what value they added to the business proposition. Our task was then to systematically remove, reduce or replace those whose value was outweighed by their cost.
What we did
We first looked at transportation. The client owned its own vehicles but used the services of a national carrier, effectively managing the carrier’s drivers and delivery routes. By recruiting a transport manager, we brought transport in-house and eliminated the carrier’s annual management fee of over £200,000.
Another major cost was headcount, as the operation was highly labour intensive. We re-engineered the process flow to achieve a flexible, fast, low-error and low-cost system that could operate 24/7. We did so using RF identity tags on individual items, pallets and vehicles, leading to a high degree of automation and a payback time of less than 12 months. Further negotiation with major suppliers ensured that deliveries were made with goods already tagged.
The process took 12 months and, as staff left, the reduced need for labour meant that there was no need to replace them.
Finally, contracts were set up with partners who were interested in using the previously unused “back load” capacity of the trucks, generating extra income.
By the end of the first year the business had developed from a loss-maker to a break-even service.