Fender Musical Instruments Europe
Founded in 1946, Fender Musical Instruments Corporation (FMIC) is the world leader in the production of electric guitars and amplifiers. Fender’s contribution to the evolving sound of contemporary music has been global and continuous.
The Challenge
Fender Musical Instruments Europe was facing several key distribution and logistics issues. The company’s existing logistics cost structure, particularly in the transportation area, was extremely high, resulting in costs that exceeded budget. In addition, FMIE was looking to improve managerial control of the distribution process.
This situation had led FMIE to re-examine its European distribution network in an effort to find an alternative that would reduce costs for supply chain processes such as logistics control, inbound transport, value-added logistics, warehousing and physical distribution, while maintaining competitive service levels. The existing network included a company-owned warehouse in London, which handled the strings, parts and accessories business, and an outsourced finished-goods warehouse in the Netherlands, which supplied guitars and amplifiers.
Future flexibility was also an important consideration, as FMIE continues to aggressively grow through acquisition and expand into new markets such as Eastern Europe.
Capgemini Approach
FMIE asked Capgemini to examine potential distribution options, outline the costs and benefits of each, and provide a recommendation for the company’s future European distribution structure. In its project management role, Capgemini provided a first-class knowledge of the logistics market in Europe and a broad perspective that allowed it to view logistics as part of FMIE’s entire supply chain process.
Capgemini embarked on a two-phased approach designed to maximize quick wins and establish a baseline for long-term success.
- Fast-Track Quick Wins Assessment: A current-state assessment of processes and
cost drivers identified a number of opportunities to quickly reduce certain logistics
and distribution costs, particularly in transportation. These opportunities included
areas such as partial shipments and bundled packages. A list of potential transportation
companies was developed, a Request for Quotation document was produced, a tender
process was conducted, responses were evaluated, a short list of candidates was
established and a new vendor was selected.
- Distribution Network Optimization Study: At the same time, Capgemini launched the second phase, which consisted of an in-depth study to investigate several scenarios for logistics and distribution processes from a “green field” perspective.
The goal: To find a solution that would best enable FMIE to reduce its logistics costs, optimize its European distribution structure and maintain service levels.
A current-state analysis evaluated factors such as operational processes and costs, service requirements, customer/supplier locations, material flows and volumes, bottlenecks and requirements for control. Following this, Capgemini developed a future-state analysis of potential scenarios. This analysis focused on factors such as change potential in service requirements, markets, sales volumes, customer product mix changes, effects of competition and the range of outsource opportunities.
Three potential scenarios were examined:
- Integration of the London and Netherlands warehouse operations at a new centralized distribution center based in the Netherlands.
- Integration of the two warehouse operations in a new centralized distribution center based in France.
- Some degree of centralization with distribution centers located in several European countries.
At the completion of the study, the options were presented to FMIE, along with a recommendation and a roadmap showing how to achieve the recommended scenario.
FMIE chose to act on Capgemini’s recommendation to integrate the two existing warehouse operations and centralize them in a new outsourced distribution center in the Netherlands. The decision was reached quickly due to Capgemini’s ability to rationalize the supply chain management numbers in terms of costs and service levels. FMIE and Capgemini then moved forward with the selection process for a third-party logistics provider. The contract with the chosen provider has been finalized and implementation of the new centralized operation is under way.
Value Delivered
Some of these cost reductions will result from centralization as well as the facility’s location in the Netherlands, which offers benefits associated with customs duty and VAT. Savings will also come from the closing of the London warehouse.
Additionally, the new centralized approach will improve logistics control for FMIE and reduce the amount of managerial attention required by providing a better management information process and greater visibility into the supply chain.
Finally, the new structure will help FMIE meet its future growth ambitions through increased flexibility resulting from:
- Cost efficiency
- Transparency
- The ability to support sales growth
- Scalability, both internal and external
- Adaptability to changing service requirements
- The ability to stay ahead of the music industry
- Low capital investment