Caribou Coffee Addresses Growth with Updated Strategic ...

Caribou Coffee Addresses Growth with Updated Strategic Network Planning Model

The Customer

Caribou Coffee Company, Inc., founded in 1992 and headquartered in Minneapolis, MN, is the second largest companyowned gourmet coffeehouse operator in the United States, based on the number of coffeehouses in operation. Caribou Coffee offers its customers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas, baked goods, whole bean coffees, branded merchandise and related products.

Caribou Coffee has more than 500 company-owned store locations. Caribou Coffee also sells its products to club stores, grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues, college campuses and other commercial customers. In addition, Caribou Coffee licenses third parties to use the Caribou Coffee brand on quality food and merchandise items. Approximately $262 million in annual sales 6,000 employees, including 24 full-time warehouse employees One primary distribution center More than 740 products stocked

The Business Challenge

The coffee business was changing for Caribou Coffee as the company experienced rapid sales growth in the commercial customer segment. This growth stretched Caribou Coffee's inventory capacity at its current distribution center and prompted management to rent additional off-site facilities to meet its growing inventory needs. As Caribou Coffee management anticipated continued growth in commercial customer sales, it realized the need for a strategic planning tool that would suggest appropriate inventory levels to support the company's growth objectives.

THE BUSINESS CHALLENGE

With sales on the rise, and representing an increasingly more significant portion of distribution capacity, Caribou Coffee needed a way to estimate future inventory needs.

THE SOLUTION

TZA, which had previously developed a strategic network plan for Caribou Coffee, provided an updated plan which reflected the company's anticipated growth.

THE RESULTS

Based on thorough analysis of Caribou Coffee's transportation and distribution processes, and taking into account Caribou Coffee's current and anticipated growth, TZA recommended a one-DC network in the Minneapolis area.

" TZA made sure the scope, financial and timeline deliverables were understood and adhered to throughout the process. Caribou will continue to rely on TZA as an informed and capable resource in addressing our future distribution and logistics opportunities required to support the growth of our distinct " business channels. Paul Turek Vice President/GM Supply Chain Caribou Coffee

TZA Customer Case Study: Caribou Coffee

Caribou Coffee wanted to create a flexible network modeling tool that could be used on an ongoing basis to analyze changes in their business, incorporate sales forecasts across all business channels, and demonstrate how these changes affected the choice of a preferred distribution network.

Management also needed to determine the lifespan of the current DC and develop an the optimal distribution network plan for a five-year planning horizon. Caribou Coffee wanted to optimize the relationships between service levels and costs to support all of its business channels.

The Solution

Caribou Coffee asked TZA to update the Strategic Network Planning model it had developed three years earlier for the company. TZA has a strong reputation in Strategic Network Planning based on more than 28 years' experience assisting companies of all sizes to rationalize their distribution network and achieve the required level of customer service while successfully meeting corporate profitability objectives.

Original Strategic Network Planning Model Project

Three years earlier, TZA conducted a network analysis study to determine the lifespan of the existing facility and the optimal distribution network for the next five years. The analysis was comprised of the following six-step approach: 1. Business Assessment, Operational Profile and Initial

Visioning 2. Data Collection, Aggregation and Analysis 3. Building and Validation of Baseline Model 4. Determination of Alternative Strategy Scenarios 5. Analysis of Alternative Scenarios 6. Formulation of Strategy and Process for Ongoing

Modeling

During this process, TZA consultants conducted analyses in the following areas:

Transportation Analysis: TZA consultants examined the flow of trucks in and out of the facility as well as where goods were being shipped to and delivered from.

Location Analysis: TZA determined the optimal zip code location for the new center as determined by the lowest transportation costs.

Inventory Analysis/Facility Sizing Requirements: TZA

conducted computer modeling, based on anticipated inventory needs, to determine space requirements and the overall size of a new distribution facility.

Network Planning Model Update

Caribou Coffee requested that TZA update the modeling tool to reflect new sales growth assumptions and added business units. The primary objectives of the assignment were to determine the life span of the current distribution facility and the required size of a potential new facility based on growth assumptions for the next five years.

TZA consultants updated Caribou Coffee's original Strategic Network Planning Template with minimal effort. They validated the inventory requirements based on updated sales forecasts and met with the senior management team to review the five-year plans for each business unit. The consultants created models that determined space requirements for a new distribution center based on several alternative scenarios.

The Results

TZA recommended a one-DC network in the Minneapolis area based on calculations that it would generate the lowest total operating cost for Caribou Coffee. TZA estimated that a 7% increase in rack locations would extend the life of the current facility and increase capacity to meet the growth requirements of each business channel.

The updated plan recommends that Caribou Coffee track and record all inventory by product type (including offsite storage).

Ultimately, dimensions (cube) by item should be tracked to allow for more detailed analysis of space requirements.

To increase utilization and capacity, TZA recommends a macroslot analysis to determine the type and quantity of fixtures required for a new facility.

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