Operations Strategy Case Study

ERP Interface, Strategy Optimization, Budget Forecasting
Case Study: Operations Strategy
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The Challenge
A major equipment leasing company was facing mounting supply chain challenges after years of double-digit revenue growth and was seeking to improve operational efficiency in the face of strong economic headwinds.
Project Methodology
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Decision conferencing
We used structured interviews and the Delphi survey method to develop a consensus-based risk-register for the client. The project sponsors identified two studies they required: assessing an inefficient supply network design and a ballooning of inventory in the vehicle rentals division.
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Data analytics
We identified relevant internal and external sources of quantitative data, especially pertaining to demand, transport costs, and delivery times, and then gathered and harmonised the data, enabling us to accurately value alternative optimization strategies.
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Strategy planning, forecasting, budgeting and monitoring
For the supply network, we baselined the current cost performance of the supply network and then developed cost models for three alternative network configurations, which included a detailed analysis of COGS build up, SG&A and CAPEX requirements.
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We then estimated NPV of the cost savings of the alternative configurations, by conducting a monte-carlo simulation and a sensitivity analysis to quantify factor sensitivity and determine strategy break-even points.

For the inventory control challenge, we developed a pareto based framework to calculate optimum stock levels and reorder points, and determine which SKUs needed to be targeted for disposal.

In response to ongoing risk monitoring needs, we introduced the concept of Value at Risk (VaR) to the operations manager and developed a simple VaR dashboard that clearly identified, quantified and ranked risks by potential financial impact.
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The project prevented the go-ahead of a negative e-NPV network redesign that would have unnecessarily inflated both the capital and operating cost structure of the business to the detriment of corporate earnings and capital utilization.

Results

The project provided the vehicle rentals divisions operations manager with a clear framework for communicating risks and mitigation strategies to the board, enhancing their ability to execute positive e-NPV optimization projects.

Finally, the project identified, quantified with value at risk estimates and prioritized other potential optimization projects for the operations manager to undertake, including freight, IT/HR, Procurement and CSR/EHS strategy.

The project identified combined working capital and inventory holding cost reductions of R$6.5 million that represented a 3% improvement in the group’s operating cash flow.

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