Strategy for direct to store delivery

Abstract

The thesis attempts to answer the question which is commonly asked by retailers and manufacturers - what's the best way to deliver a product to the store? Specifically the thesis tries to understand and evaluate the impact on transportation and safety stock when a manufacturer transitions from a 100% DC delivery method to 100% Direct-To-Store (DTS) method. Drawing on the results of a case study on Niagara bottling, a leading private brand water bottle manufacturer in US, the thesis recommends strategies to minimize the cost impacts on safety stock and transportation. We developed the inventory and transportation models using one key product and two customers. Using sensitivity analysis and simulation technique, we tried to find the behavior of the transportation costs and safety stock at incremental phases during 100% DC to 100% DTS transition. The findings showed that transportation costs increase by 40% or more and dominate the cost structure as compared to safety stock cost changes. Secondly, we found that increasing order sizes or combining two customers on the route can lower the transportation costs by 4%. From an inventory standpoint, a shorter lead time reduced the safety stock in the total supply chain by as much as 26%. Since a shorter lead time increases the manufacturer's safety stock, he needs to develop a benefit-sharing contract with the retailer so as to create a winwin situation for both. Beyond a certain point (typically below lead time of 3 days), the transportation costs can rise and offset any safety stock savings. Finally, we observed that a collaborative forecasting process will benefit the supply chain in reducing safety stock by as much as 72%.