A sporting goods outfitter with a large presence on the west coast approached LogistiPoint about conducting a distribution network analysis that would incorporate their five-year growth plans (increasing stores and e-commerce volume).
The client’s current distribution network consisted of a single distribution center servicing 100 stores and all e-commerce sales. It was estimated that this DC was nearing capacity with the current volume it was processing during peak weeks. The question facing this retailer was: what changes needed to be made to support a nearly 50% increase in stores and a 2x increase in e-commerce over the next five years?
We started by considering future inventory improvements to assess whether or not the current DC could handle the growth projections. It became clear that their current DC would be beyond capacity by 2022 while also facing extensive transportation costs servicing stores east of the Mississippi. Alongside the client, we had to determine: Should they continue to build out their current DC and service the growth from a single location, or should they consider a new DC altogether? When do they need to make a decision in order to avoid any stalls in accommodating growth?
According to the U.S. Census Bureau, nearly 75% of the country’s population resides in the northeast, south, and midwest regions. With plans to expand their store presence in these three markets, we were able to rule out expanding the current DC on the west coast as a viable option given the escalating transportation costs to new eastern stores. By incorporating projected growth, we determined that early 2022 was the most opportune time to have a second DC up and running without needing to find alternative, short-term solutions to handle the growth.
Using a centroid analysis, we located a region (Indianapolis, Louisville, Cincinnati, Columbus) that reduces outbound mileage by nearly 40% compared to continuing their single DC network. Another benefit of this area is that it also provides access to major transportation routes and is closely located to parcel shipping hubs.
By shipping orders in this region of the country, e-commerce costs will be reduced and store service-levels improved. By 2024, our client will see nearly $1 million in savings alone with a central DC to support their growing e-commerce business.
More importantly, with a DC servicing the eastern half of the U.S., they will be able to better meet their customers’ expectations for delivery time. With a two-DC network, 73% of the country could be serviced by UPS Ground within two days, and the entire country could be serviced within three days.
The benefits of a two-DC network were clear to both us and the client. Overall, getting ahead of their growth projections would reduce parcel and outbound costs by 15% by year 2024.