The document discusses themes related to warehouse and distribution footprint. It identifies the top 5 themes as: [1] Network design; [2] Channel control; [3] In-house or 3PL; [4] Re-tender; and [5] Cost to serve. For each theme, the document provides viewpoints and considerations for defining a company's warehouse and distribution strategy.

1. VIEWPOINT 2016
Warehouse
and distribution footprint
Themes within:

2. 2
Preface
THIS VIEWPOINT COVERS THE
FOLLOWING THEMES
• Network design
• Channel control
• In-house or 3PL
• Re-tender
• Cost to serve
This viewpoint is about themes within warehouse and
distribution footprint – a topic that we at Implement
Consulting Group are passionate about, and a topic that we
have worked intensively with in collaboration with our clients.
We have asked our international clients which themes they
believe will have the most strategic relevance within the next
two years.
The purpose of this booklet is to present our viewpoints on
these strategic themes. Furthermore, we want to share some
of our knowledge and experience.
Enjoy!
Note: For more on the process of how to create the warehouse and distribution footprint, please read our viewpoint: “Manufacturing and distribution footprint”.

3. 3
0 1 2 3 4 5
Supply chain agility
Distribution flexibility
Total cost of ownership
Consolidation
Distribution as a profit centre
Reverse logistics
Re-tendering
Network design
Differentiated distribution
Channel control
Cost to serve
In- or outsourced logistics
We asked our international clients a number of questions, one of which was …
Which of the following warehouse and distribution themes has the most strategic relevance
to your company within the next two years?
ImportanceTheme
… so we decided to deep dive into the top 5 themes
1
2
3
4
5
Deselected
Selected for deep dive

4. 4
Defining the warehouse and distribution footprint is complex, but it is all about
service customer needs and supporting the flow of finished goods in the value chain
Production/
sourcing
Seasonal
buffer stock
1 Network design: How many
warehouses, which roles, and where
should they be located?
2 Channel control: Are you designing
and orchestrating the services that the
customers are being offered? Should
you? Or not?
3 In-house or 3PL: Should
operations be handled internally
or outsourced?
4 Re-tender: Do our 3PL prices
correspond to the market
prices?
5 Cost to serve: Understanding the true
logistics costs provides an insight into
which customers are truly profitable
Warehouse and distribution footprint
Customers
Distribution
centre
Central
warehouse
Factory
warehouse

5. 5
Redesigning the distribution network is initiated, if the current
setup does not meet customer requirements, or if the cost level
is too high
• The warehouse and distribution setup dictates the service
offerings that can be provided
• Service, speed and costs are the elements that need to be
balanced
DISTRIBUTION NETWORK
STRUCTURE
1

6. 6
› Designing the footprint is more than a
centre of gravity; exploiting all design
options leads to much larger benefits
› Forget the current setup – work backwards
from the ideal structure
› Stick to the concept – planning complexity
and broken routines eliminate the upside
of logistics
› A complete redesign of the warehouse and
distribution footprint can be implemented
on a 1-2-year horizon
What we think …What we hear/see …
› 7 out of 10 companies have a footprint that
does not match customer requirements or
operates on a cost level that is too high
› To most companies, logistics costs are a
significant driver that easily reaches 5-10%
of revenue
› Only few companies have succeeded with
a multi-/omni-channel setup – many are
only talking about it
› Companies often overlook the value of
redesigning their footprint

7. 7
+
Defining the logistics setup via a centre of gravity alone is not possible; it only
provides 10% of the solution. We call the remaining 90% a footprint project
WAREHOUSE AND DISTRIBUTION FOOTPRINT PROJECT
It is important that the centre of gravity analysis is used as support and inspiration
for the footprint project and does not become the solution alone.
Establish common starting point and plan process
Detailed analyses and baseline mapping
Clarify market, consumer and supply chain requirements
Formulate design principles and generate footprint scenarios
Validate business case and global implementation plan
Define
1
Current state
2
Requirements
3
Scenarios
4
Develop
5
Recommendation
CENTRE OF GRAVITY
90% 10%

8. 8
KEY QUESTIONS TO CONSIDER
Designing the footprint is a balancing act with multiple dimensions
and key questions to consider
Lead time
Cost
Working
capital
Service
offerings
Maximising logistics
value for customers
Number of
warehouses/
DCs
Outsourcing vs
insourcing vs
mix
Direct
shipments from
supplier
Geographical
placement
Customs and
tax impact
Political
implications
Distribution
network structure
Services and
lead time
Order cut off
and time slots
Role of DC/
warehouse/
stores
Where to stock
what
Customer
segmentation
Degree of
flexibility
Own fleet vs
flexible fleet
arrangements
Degree of
demand
variation
Consolidation
and critical
mass
Capacity
utilisation and
load levelling
Operating
principles

9. 9
The number of warehouses is the largest component driving the
highest impact on logistics costs and lead time to customers
Facility TransportInventory
Logistics
costs
TRADE-OFF BETWEEN LOGISTICS COSTS VS LEAD TIME AND NUMBER OF WAREHOUSES
Number of warehouses 
Lead timeTotal cost
Number of warehouses 
Logistics
costs

Lead time

Warehouse costs will increase
steadily due to efficiency and less
economy of scale as more
locations are added.
1
Direct costs related to adding another
warehouse are an additional 25%. A
minor decrease in case of many locations
due to cross-shipping possibilities.
2
Transport costs will drop due to
shorter last mile distribution to the
extent where it affects the
utilisation of trucks.
3
The distance going from one to two
warehouses will drive lower total
costs, but the total cost will increase
the more warehouses you add.
4
Lead time will decrease as the
number of warehouses increases,
however, only to the point where
delivery services are optimised.
5

10. 10
Companies often overestimate the time required to implement parts of
the final solution to gain fast improvements
IMPLEMENTATION HORIZON
Re-tendering
Outsourcing
Introduce new/optimised services
Consolidate two warehouses/DCs
Establish new warehouse/DC
Complexity
Implementation time
Route optimisation
Flow design
1 month
Low
High
2 years

11. 11
CHANNEL CONTROL
Supply chain orchestration
Being in control of the channel means that you design and
orchestrate the services which the customers are being offered
• Strategic market position to reduce risk of substitution
• Offering value-added services to increase profitability
2

12. 12
› Take a strategic position, otherwise
someone will take it for you
› Taking control in an existing setup when
someone else is in control is hard; doing it
upfront is easy
› Some companies can gain strategic
advantages from having channel control;
others cannot
What we think …What we hear/see …
› Companies do not know if they are in
control
› Underestimating the importance of
making an active decision regarding who is
in control can, at worst, lead to bankruptcy
› Only few companies are able to increase
profitability by taking control. In most
cases, control is taken to reduce risk

13. 13
The “why” behind the struggle for channel control is typically
explained by the strategic position in the market
Suppose you are to start a manufacturing
company, and you must choose to be either A or B
Company A
You produce private label articles for
a large retailer. The retailer picks up
the goods at your factory and handles
the distribution.
Company B
You produce private label articles for
a large retailer. Furthermore, you
handle the distribution to the retailers’
shops as well as the goods reception.
Controlled by retailer Controlled by you
• Company A and Company B
currently have the same EBIT
%. They are both considered
healthy businesses.
• Please note that controlling the
distribution does not mean that
you do the distribution. It could
be outsourced to a 3PL.
Comments
• What are your core competencies? And to what extent are our products/services substitutable? Could you be substituted?
• What is the strategic importance of the customer (i.e. the retailer in the above example)? And to what extent will the
retailer be able to pressure you to lower prices?
• How easily will you be able to increase EBIT % in each case?
• Since only one can be in control at the same time, the question is whether you will be able to take control?
Questions to consider before choosing A or B

14. 14
When looking at each industry, a typical control pattern emerges
DEGREE OF DISTRIBUTION CONTROL
Newspaper industry
Typically consolidated customer deliveries due to very low margins. Often
newspapers establish shared distribution companies.
Low High
Retailers
(without production)
Often, the retailers control the distribution to their own shops and supermarkets
as well as inbound logistics to be able to change suppliers extremely fast.
Retailers
(with production)
Large brands such as Nike/Adidas/Zebra control the entire supply chain, and the
trend is increasing due to e-commerce.
Food industry Strategy depends on product characteristics and brand value.
Dairy
Being able to deliver fresh milk within 24 hours requires specialised trucks to
collect the raw milk and distribute the finished products directly from the dairy.
Construction materials
Most suppliers of construction materials are in control of distribution. In this case,
it is typically a strategic decision in order to maintain the customer relation.
Pharmaceuticals
Specialised competencies within biotech and pharma. The products are often
distributed by wholesalers to pharmacies and hospitals.
Manufacturing and
technology
Having control is often down to the volumetric characteristics of the products, i.e.
simple cost optimisation.
INDUSTRY COMMENTS

15. 15
Which channels should you control, if any?
What is to be gained from controlling the channel?
To what extent does your strategy support channel control?
What is the industry standard? Market advantages?
What is the nature of your products/services? Risk of substitution?
Who is currently in control? Suppliers? Customers?
What skills are needed to orchestrate the channel?
To what extent are the skills available at your company?
What is the cost of controlling the channel?
Are there any risks associated with taking a step towards control?
Decision
Question: Should we control channel X?

16. 16
IN-HOUSE OR 3PL
Balancing the advantages of 3PL capabilities and cost structure in
order to meet customer logistics requirements vs doing it in-house
• Match capacity with demand fluctuation
• Select services and/or competencies to be outsourced
• CAPEX and operational cost
3

17. 17
› Deciding whether to outsource or do it in-
house is a top management decision with
significant CAPEX impact – the decision
may be irreversible
› Understanding your customers’ true
service requirements is essential when
building an outsourcing business case
› If you have critical mass and stable
demand, you can take the margin of the
3PL
› 99% of all the services that you and your
customers require can be provided by 3PL
What we think …What we hear/see …
› Companies often insource logistics to
reduce risk. On the other hand,
outsourcing is used to reach a more
variable cost structure
› Logistics services are often perceived as a
commodity – not a service
› Being successful in logistics is truly
independent of your core business
› No one has fully flexible logistics costs –
not even large 3PL

18. 18
Statistics show that the market is increasingly trending towards
strategic outsourcing of logistics
72% of shippers are increasing their use of outsourced logistics, while 23% of shippers
report that they are returning to insourcing, at least for some of their logistics activities.
86% of Domestic Fortune 500 companies use 3PL for logistics and supply chain functions.
The largest challenge faced by 3PL is capacity, the second is technology
investments, and increasing operational costs are only the third largest challenge.
56% of companies are trending towards strategic sourcing, reducing and/or consolidating
the number of 3PL they use.
Companies rate the services provided by the 3PL as four times more important than
costs.
Looking at companies, 84% use more than one 3PL in their operational setup.

19. 19
Market insights show that customer service, flexibility and cost
reductions are the primary drivers of strategic outsourcing …
64%
Avoiding investment
Focus on core business
64%
38%
60%
68%
Other
Expansion to new markets
Operational flexibility
Cost reduction
Competencies of 3PL
18%
8%
3PL have the required competencies within the logistics area in terms of operation,
strategic as well as integration platforms to provide the required services to meet
customer demand.
In an ever-increasingly agile and competitive market, 3PL have to be flexible and highly
customer-oriented. 3PL have the ability to leverage workloads better across their
customers and systems to support such demand.
Cutting costs is still important for customers. 3PL have the ability to provide a cost
structure that is more driven by variable costs to cope with fluctuations combined with
the advantages of utilising the setup better across customers driving higher efficiency.
If logistics are not the core of the business, outsourcing is a good alternative.
Outsourcing will assist customers in reducing logistics challenges in a professional
environment where services are available and specific knowledge is easily accessible.
Logistics are driven by investments in buildings, equipment, trucks and technology,
which influence CAPEX. Outsourcing of logistics services creates the ability to eliminate
current investments and avoid new investments.
Penetrating new markets include a first phase with low volume and high uncertainty
about growth development combined with an insufficient level of knowledge about
logistics at market level. All parameters which favour outsourcing.
Depending on industry, this includes capacity challenges, head count reductions,
access to qualified labour force, learning/training skills required for new area, risk
mitigation etc.
Degree of importance Perception of customers

20. 20
… so before you decide to outsource, you need to consider the
strategic impact of the decision
Decision
Cost of services
• Transport time
• Quality and damage
• Value-added services
• Etc.
Ability to reach
high utilisation
• Trucks in own fleet
• Demand fluctuations
over time
• Margin of 3PL
Avoid
investments/
CAPEX
• Assets such as
buildings, trucks and
equipment
• Sale and leaseback
• 3PL setup: 0 CAPEX
Matching
corporate strategy
• Channel control
• Support of e.g.
omni-channel setup
• Risk
Competitive
advantage
• Special services and
technology
• Speed of ramp-up in
new markets
• Service as a product
AREA KEY NOTES KEY QUESTIONS
• To what degree are our customers willing to pay for logistics services,
and which service do they prioritise?
• Can we deliver the services within the defined cost level, and/or can
we compromise on the quality level?
• With the sold volume, can we reach critical mass in order to reach
sufficient truck utilisation?
• Can we use 3PL as a buffer and then adjust our capacity in such a
way that we will always have high utilisation? What would be the price
consequences of 3PL?
• What is the financial agenda of the company, and is it in line with our
owners/shareholders?
• If we outsource our warehouse, can we decrease our CAPEX, or
could we use sale and leaseback on our premises instead?
• Do we want and/or need to use our logistics setup as a competitive
advantage?
• Can we benefit from large 3PL networks to increase market share and
ensure our market position?
• Looking 3-5 years ahead, how does our strategy cascade down to
logistics? Are there any special requirements that we will need to
fulfil?
• What risks are we willing to take in order to cost optimise in the short
term?

21. 21
RE-TENDER
Ensure market prices of outsourced logistics services by
challenging the current setup, contracts and agreements
• Describe current state, review requirements for future setup
• Plan and conduct tender process with multiple pre-selected
3PL on price and service
4

22. 22
› 3PL willingness to improve increases
dramatically when executing a tender
process
› When re-tendering, remember to revise
your service offerings for your customers
› The most cost-efficient setup usually
requires more than one 3PL
› The 3PL market for warehousing and
transport is volatile; therefore, tendering is
a proven tool to ensure market cost level
› The right cost drivers in 3PL agreements
initiate a lower cost level
What we think …What we hear/see …
› Companies doing frequent re-tendering do
not necessarily succeed, simply because
focus is on procurement rather than
operations
› Not many understand the market
mechanisms; bringing the right
competencies to the tactical game of
re-tendering is difficult
› Successful re-tender processes are
supported by firm preparations; analytical
insights, clear service requirements and
commercial conditions
› In general, a re-tender process can
decrease costs by 5-30%

23. 23
Description:
Logistics management:
Independent and non-
asset-based integrators
with the ability to combine
own technology, resources
and capabilities with 3PL to
design, build and operate
comprehensive supply
chain solutions.
Can be advantageous
when:
• Starting up or in very
fast-growing industries
combined with low
logistics capabilities
• Multiple logistics
services are required
and driven by
technology
Description:
Freight forwarders:
Provide an array of
logistics services to
customers, for selected
areas. Sub-contract all or
much of the services to
specialised transport
companies.
Can be advantageous
when:
• Volume spreading
across; large
geographical area
and/or means of
transport
• Valuable expertise
accessible combined
with flexible and agile
solutions
Description:
Supply chain
management: Logistics
services providers who
develop, implement and
control, preferably in close
consultation with the
customer, the best
possible supply chains or
networks. 5PL logistics are
often linked to e-com.
Can be advantageous
when:
• The supply chain is
considered not business
critical to success
• Alternative solutions are
less attractive
Description:
Carriers, airlines and
trucking companies: An
asset-based carrier with
specialised sector
knowledge. Actually owns
the means of transport.
Can be advantageous
when:
• All logistics planning
activities are handled
internally and
considered a
differentiator
• High volume to support
attractiveness of 2PLs
Description:
Companies’ own
equipment: A company or
an individual that needs
to have cargo transported
from A to B by using its
own equipment.
Can be advantageous
when:
• Critical mass and low
fluctuation to utilise
own equipment
• Specialised equipment
with limited
possibilities of
synergies through
xPLs
Re-tendering is becoming more and more complex due to the number
of services being handled by the xPLs
1PL 2PL 3PL 4PL 5PL
Complexity of re-tender

24. 24
Obtaining cost reductions via re-tendering is not only a procurement
task – understanding the market dynamics and cost drivers are key
Cost drivers
• The number one factor impacting the success
of the re-tender process is defining the cost
drivers correctly
• A simple tool for quantifying the impact of
different cost drivers is to build a simple model
to test the consequences of historical data
Market mechanisms
• From a macro perspective the market for logistics
services is strongly driven by global economic…
• … however, from a micro perspective some 3PLs can
give significant better prices due to their client base and
their specific geographical setup
Simulation
• Building a simple cost model to
simulate different prices will help in
the selection process
• Exploring different rate tables and
accepting high prices in some weight
bands might be beneficial
Services
• Introducing new services can trigger a re-tender,
often due to a lack of market insight or xPL
competencies
• Defining and deciding the right service offerings
and requirements are necessary before conducting
a tender process
Price volatility
• A re-tender should be carried out every 1-2 years
depending on means of transport
• Prices can easily change by +/-10% in one year
• You can be sure to be contacted by your 3PL, if the
prices increase. However, the likelihood of them
contacting you if the market prices decline is, not
surprisingly, very low
Fixed prices and trading
• Handling logistics services as a
commodity and trade prices on a case-by-
case approach is only beneficial for few
• Getting fixed prices via a tender is optimal
for more than 95% of companies
Re-tender

25. 25
More and more xPLs are investing in technology to create new
services, however, we see transparency as the main benefit
TECHNOLOGY TRENDS WITH LOGISTICS IMPACT
3D printing
Big data
Self-driving vehicles
Cloud logisticsInternet of Things
Robotics and automation Digital identifiers Unmanned
aerial vehicles
Impact on logistics
With all these new technological trends, should you select your 3PL based on their
technological readiness and willingness to explore?
We believe not. You should select 3PL based on current expertise and their ability to support your
operations. What you should consider is their ability to give you control and transparency into their
operation.
Q
A

26. 26
COST TO SERVE
Understanding the true logistics costs associated with the
services which the customers are being offered and consume
• Differentiated logistics services are equal to different costs
• Creating insights into which customers are truly profitable
5

27. 27
› When providing multiple logistics services,
one must understand the true cost to serve
› Do not overcomplicate the cost to serve
model – take a “roughly right” approach
› Sales organisations must be impacted by
the true logistics costs to change behaviour
› The cost to serve model is an enabler of
improving the customer segmentation
What we think …What we hear/see …
› Companies have little insight into the true
logistics costs and often underestimate the
importance of creating this insight
› Building an exact model is not worth the
effort. Often, they end up being “exactly
wrong”
› The most successful cost to serve models
are the ones where the whole organisation
understands and trusts the logic

28. 28
The cost to serve analysis provides answers to a number of questions
Cost to serve
Segmentation and
future service
offerings
Supply chain
tasks, cost drivers
and unit costs
Where to focus
Full cost
transparency of
service offerings
and profitability
Menu pricing/full
“distribution” cost
• Service costs: What are the costs related to the provided service offerings (MTO, MTS, lead
time, VAS, VMI)?
• Profitability: What is the full profitability of customer segments, products and channels?
• To what extent are “products”/customer segments paying for the service of others?
• Over-servicing: What are the costs associated with over-servicing?
• Activities: What are the supply chain activities and the related total costs?
• Cost drivers: What are the most significant cost drivers in the supply chain? And what are the
primary cost drivers related to service of products and customer segments?
• Unit costs: What are the unit costs of the various supply chain activities?
• Improve pricing: Change pricing to achieve profitability of all products and customer segments?
• Holistic dialogue: Use full transparency to achieve more holistic dialogues with customers?
• Limitation of services: Should services be limited to specific customers or segments?
• Full distribution costs: As supplement to full manufacturing costs – to drive customer
behaviour?
• Differentiate to improve: Will differentiated supply chains provide better overall customer
satisfaction and improve the balance between cost, lead time and delivery precision?
• Which services: How to segment the value chain, and which service offerings to differentiate?
• Potential evaluation: What is the overall potential of supply chain differentiation?
• Supply chain improvements: Where should supply chain improvement initiatives be focused?

29. 29
The cost to serve calculation is based on the key activities that drive costs
and is allocated accordingly to each customer order
Activities
Cost
drivers
Total number
of units of
cost drivers
Cost objects
(e.g. products, customers)
Total cost base
(general ledger)
One fiscal year
Direct transfer via
cost centresA
C
B Direct allocation by %
Via resources and
resource drivers
• Allocation of cost to
resources (FTE, M2, ?)
• Find total # resources
• Calculate resource unit
cost
• Allocate by resource
driver split (FTE, M2,?)
Main activities
identified via
process mapping
and interviews
1
Distribute cost
base to activities3
Understand
and select cost
drivers for the
activities
2
Find total number
of units in cost
base period
4
Based on transaction data from
ERP system or estimated
Unit cost by
activity
Calculate
unit cost5
Find number of units
by cost object  total
cost of cost object
6
Link between
products and
customers
Transactional
data linking cost
drivers to cost
objects
(products,
customers)
Number of units
of cost drivers
(e.g. # shipments)

30. 30
The cost to serve model is both an enabler of improving customer
segmentation and a tool for the sales organisation to create better contracts
Low
cost
Standard
Agile
Customers
Volume
Top 30
customers High delivery frequency
Small-sized deliveries
Few deliveries/week
Medium-sized deliveries
STANDARD
LOW COST
AGILE
1,000
30
200
Customers
70%
25%
5%
Volume, CBM
85%
10%
5%
Sales, €
80%
15%
5%
Logistics cost, €
200
100
400
Logistics costs, €/CBM
100
50
200
Cost index
EXAMPLE OF OUTPUT FROM CTS MODEL

31. Problems can be complicated.
Solutions cannot.

32. Lars Saur Feldstedt
Email: lsf@implement.dk
Tel: +45 2338 0068
Kenneth V. Olsen
Email: kvo@implement.dk
Tel: +45 4138 0070
Johannes J. Skibsted
Email: jjs@implement.dk
Tel: +45 2338 0030

33. Implementconsultinggroup.com
implementconsultinggroup.com/warehouseanddistribution
Implement Consulting Group
Implement Consulting Group is a leading Scandinavia based management consultancy,
specialised in driving strategic transformations with a strong differentiator on “making
change happen” – delivering documented Change with Impact.
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