RETHINKING A 30-YEAR-OLD SUPPLY CHAIN
When Schwan's Home Services began its network optimization journey in 2010, the company was challenged to make a very difficult decision. It had to shrink to grow.
The Marshall, Minn.-based direct-to-consumer division is the largest of Schwan's three operating units, and delivers to 90 percent of the 48 contiguous United States. It operates a route-based system that distributes product to consumers every one to two weeks. Seventy percent of the product it sells is co-manufactured with outside companies; the remainder is produced at eight manufacturing plants across the United States.
Before it revamped its network, Schwan's operated 475 company-owned depots around the country. The depots are inventory-holding distribution nodes that maintain a fleet of 10 to 15 propane-powered trucks at each location to make daily deliveries. Depots are replenished every 8.2 days out of Schwan's national distribution center in Marshall.
"What is unique about our business is that these depots are living and breathing sales companies," says Jeff Modica, vice president of supply chain, Schwan's Home Services. "Sales reps go out on pre-determined routes, carrying about 500 stockkeeping units (SKUs) in different quantities. Loads are built differently each day, depending on demand for that route."
By 2011, Schwan's realized its delivery network was critically outdated. Steady growth over 60 years, and re-investment in brick-and-mortar infrastructure, had bloated Schwan's footprint, accumulating unnecessary fixed costs. When Modica and his team evaluated the company's status, they recognized it needed a different way to operate—and an outside perspective. So they brought in Deloitte Consulting to marshal a network analysis and redesign.
"Large, complex networks often grow until the aggregate effect of many good decisions is no longer aligned with the marketplace," explains Long. "That's where Schwan's found itself."
To bring the Schwan's network in sync with the changing market, Deloitte had to consider the unique nature of its business model.
"For many businesses, the expense of running a network is non-human—it is asset-, fuel-, and technology-driven," Long says. "But Schwan's has a live selling network. Drivers get out of the truck and contact the customer. The higher percentage of built-in people costs makes getting the right answer more difficult."
When Schwan's considered these challenges, it set out to achieve three primary objectives.
"First, we needed a lower cost to serve," says Modica. "Second, we had to be more flexible. Buying and owning assets wasn't necessary. We had to be able to make variable costs out of fixed ones by using leased facilities, public cold storage, and third-party logistics (3PL) providers. Finally, we had to right-size the network.