This report evaluates whether Exel should move into supply chain planning with Haus Mart at this time or pursue some other strategy for advancing Exel’s current role. Economic and strategic arguments will be provided to convince Exel leadership of the best course of action. The following bullet points will identify the key issues in the case followed by an analysis of those issues.
Haus Mart is reliant on over 650 supply chains worldwide to control the freight management responsibilities for all of its brand name products, representing 70% of the company’s revenue, which creates substantial risk in terms of receiving orders on time and of the right quantity and quality.
Exel does not control the sixth DC, so though Exel conducts exceptional freight management of all private label products (30% of company revenue), the logistics company has no control over the process for those products delivered to the sixth DC.
Exel has a proven track record of keeping and extending the scope with its customers. Exel has extensive experience and well-established global networks for freight management (675 locations in 112 countries) and contract logistics (1,600 facilities in 120 countries) and is well qualified to assume a supply chain planning role with Haus Mart. However, the purpose of moving beyond simple coordination to supply chain planning under the new Lead Logistics Partner (LLP) model is to allow Exel to help its customers match supply with demand, identify drivers of risk, and reduce the risk to both companies. The issues presented above are fair warning that a sudden transition into a business-wide supply chain planning role would not be a wise next step for Exel at this time. However, Exel can assume a limited supply chain planning role which will be discussed in the action plan later on.
The issue of 650 global suppliers of brand name products is the most concerning issue in evaluating the opportunity at hand. It would be very difficult for Exel to forge strategic planning decisions and guarantee results while having no control of the freight management of 70% of Haus Mart’s revenue. Once concern is that there are too many brand name product suppliers. With an overabundance of suppliers come high costs, high risks, shallow relationships, low leverage, a lack of high volume discounts, poor performance and a slew of other concerns that make Haus Mart inefficient and unable to guarantee its customers a sure thing. Haus Mart needs excellently performing suppliers, not too many suppliers.
The other obvious concern is that these suppliers control the freight management. For supply chain planning to be successful for Exel, freight management and contract logistics must work together to create an efficient supply chain from the source point to the point of sale. Exel is doing an excellent job running five of the six DCs for Haus Mart and delivering those products to the 350 German stores as well as executing brilliant in-store logistics. However, any disruption in the freight management of these brand name products before they reach the DCs will pull the rug out from under Exel’s supply chain planning and may involve the company in a decision which loses Haus Mart money.
The other main issue is that Exel has no control over the sixth DC. Therefore, Exel is limited on the efficiencies and cost savings it could produce for Haus Mart. Freight management and transportation in Germany for all private label products are run by Exel. So for the five DCs Exel runs, the logistics company can depend on excellent freight management for these private label products. This is the one business situation between Haus Mart and Exel where a supply chain planning role would be effective at this time. The reason being, this is the only situation where Exel has full control of the supply chain from freight management in Turkey, through the five distribution centers to the stores in Germany.
In this case, all risk incurred would depend on the performance of Exel alone. The 3PL running the sixth DC is consistently underperforming compared to Exel. As a result, despite excellent freight management, Exel has no control over the contract logistics for private label products flowing through this DC and certainly no control over the brand name products. Exel has no way of coordinating with this DC to provide best in class delivery and in-store logistics to the German stores this DC delivers to. Exel can conduct reactive in-store logistics at these locations, but there is no way to benefit from the coordination and efficiencies produced by the DC and store locations working together to best serve the consumer.
Exel and Haus Mart should consider the following action plan to address these issues and put Exel in an ideal position to assume a business-wide supply chain planning role. First, Exel should assume supply chain planning for private label products flowing through the five DCs it controls. As mentioned before, Exel manages the supply chain from start to finish and this case and depends on its own expertise to mitigate risk. Second, Haus Mart needs to conduct a supplier performance analysis and look for ways to trim the fat off of its 650 brand name product suppliers for the many reasons mentioned earlier. A CAGE analysis should also be conducted to determine the cultural, administrative, geographic and economic advantages/disadvantages of all suppliers both from a regional perspective and by country.
Haus Mart can then move to consolidate its suppliers. One critical consideration must remain top of mind. The company must not accidentally remove key value-adding partners or strategic alliances, which may potentially destroy key relationships and jeopardize the overall supply chain. Third, Haus Mart should start transitioning Exel into taking over the freight management role for all brand name products. Start with a few key suppliers. As the supplier consolidation finishes, Exel will continue assuming freight management responsibilities one supplier at a time until it controls the whole show. Fourth, Haus Mart should give Exel control of the sixth DC when the other 3PL’s contract expires.
This 4-step action plan will create an ideal environment in which Exel can effectively deliver best-in-class supply chain management solutions. Both freight management and contract logistics would operate via Exel’s excellent IT management systems allowing Exel to achieve its informational technology objective of maintaining accurate data. With a consolidated list of suppliers for brand name products and Exel in control of freight management for private label and brand name products, Haus Mart planners could then trust execution and be trained against resorting to costly “just in case” behaviors such as ordering extra inventory. With Exel managing the supply chain from start to finish, freight management to contract logistics, Haus Mart will see significant savings both immediate and long-term. Then, having developed some experience in supply chain planning per step one, Exel would be in a great position to assume a business-wide supply chain planning role at Haus Mart.