Integrative retail logistics: An exploratory study

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<ul><li><p>Oper Manag Res (2013) 6:218DOI 10.1007/s12063-012-0075-9</p><p>Integrative retail logistics: An exploratory studyHeinrich Kuhn Michael G. Sternbeck</p><p>Received: 17 February 2012 / Revised: 7 May 2012 / Accepted: 18 December 2012 / Published online: 29 January 2013 Springer Science+Business Media New York 2013</p><p>Abstract Grocery retail companies have gone through atransformational change in the past by heavily investing indistribution centers of their own and by expanding theirlogistics activities. As a result, many retailers are now inthe process of better adjusting their logistics operations totheir specific requirements against the backdrop of rais-ing pressure in a highly competitive environment. In thislight, we provide an exploratory study based on semi-structured face-to-face interviews with 28 leading Europeangrocery retailers. First we examine the current strategicdesigns of grocery retailers internal logistics networks.Next, we shift our focus to the resulting interdependenciesin tactical supply chain planning between instore opera-tions and upstream logistics processes. We have identi-fied five interdependent planning issues: order packagingunit, store delivery pattern, store replenishment lead time,store delivery arrival times and arrival time windows, aswell as roll-cage sequencing and loading carriers. Eachof these mid-term planning interdependencies is evaluatedwith regard to implications in the stores, in transportationand in the distribution centers. The mid-term operationsplanning issues in the grocery retail industry consideredin this paper have remained practically unexplored up tonow. The outcome of this empirical research study there-fore has substantial relevance for future retail researchand practice.</p><p>Keywords Grocery retailing Retail supply networks Retail supply chain planning Retail operations</p><p>H. Kuhn M. G. Sternbeck ()Catholic University of Eichstaett-Ingolstadt, Ingolstadt, Germanye-mail:</p><p>H. Kuhne-mail:</p><p>1 Introduction</p><p>The stationary retail environment is becoming increasinglycompetitive due to ever rising consumer requirements andmarket consolidation. One factor is that consumers alwaysexpect well-stocked shelves with products that are guar-anteed fresh, clear aisles in the supermarkets and storeemployees who have time to answer their questions. Theseservice elements contribute to the stores atmosphere, whichis considered a key driver of customer loyalty (Molinaet al. 2009). On the other hand, competition in the gro-cery retail sector is growing due to market consolidation.1This in turn leads to better purchasing conditions for theretail companies, which can as a result reinvest in lowersales prices. This however has the knock-on effect ofintensifying competition.</p><p>These conditions and developments raise the pres-sure on logisticsone of the core activities of groceryretail companies todayto operate efficiently. This focus onoperational efficiency is supported by the fact that averagelogistics costs in the retail sector are higher than for man-ufacturing companies (Van der Vlist 2007, p. 3). Retailershave continuously assumed more of the logistics operationsfor which the manufacturers had traditionally been respon-sible (Fernie et al. 2000, 2010). Nowadays grocery retailersusually operate distribution centers (DCs) and thereforehave their own vertically integrated logistics network tomanage. After such radical changes in the assignmentof logistics tasks within the fast-moving consumer goods</p><p>1For example, in Switzerland the two largest retailers hold amarket share of around 67 % in the food retail market (The EconomistIntelligence Unit 2010); in Austria, the three largest grocery retail-ers have a market share of 78.5 % (Trautrims et al. 2010, pp. 7071);after two takeovers, the German drugstore market is dominated by onlythree companies operating nationwide.</p></li><li><p>Integrative retail logistics: An exploratory study 3</p><p>(FMCG) supply chain, many retail companies are currentlyin the process of better adjusting their logistics system to therequirements of the market without modifying the systemat its core.</p><p>In spite of these transformational changes, retail researchlacks a comprehensive view on retail logistics networks asthey have evolved over time, and on the interdependentlogistics planning problems (Hubner et al. 2010). In partic-ular, logistics store processes, which account for the largestpool of operating costs in the internal supply chain, are stillnot properly integrated in retail supply chain planning. Theobjectives of this exploratory research are therefore twofold,reflected in the research questions (RQ):RQ1. How are grocery retail logistics networks and their</p><p>associated product flows designed?RQ2. Which interdependent decisions have to be made</p><p>on a tactical level to manage network efficiencyand capacity, and what are the implications for thedifferent subsystems of the network?</p><p>The findings of this paper are based on an exploratoryempirical investigation. We have conducted in-depth inter-views with operations managers of 28 German, Austrian,and Swiss-based grocery retailers. The experts describedthe design of their store and logistics networks, and illus-trated interdependencies in operations planning from theirperspective. Many interviewees emphasized that it is a chal-lenging task to balance the requirements of the differentsubsystems to improve operations performance and keep upwith the growing competition (Kuhn and Sternbeck 2011).</p><p>Related to the first research question, we investigated thecurrent designs of grocery logistics networks. We categorize</p><p>the network types explored based on applied distributionstages and the implementation of internal product flow con-solidation. As most of the retailers operate both centraland regional distribution centers, we asked the managersabout the factors they take into account when assigningstock keeping units (SKUs). We demonstrate that togetherwith further planning variables, these differing physicalflow structures lead to varying supply chain segments withdivergent characteristics.</p><p>The second purpose of this paper is to investigate themain interdependencies in tactical operations planning.From a functional perspective, the internal grocery retailsupply chains examined can be divided into three logisticssubsystems: distribution center, transportation, and store(see Fig. 1). As every subsystem with its own working andplanning mechanisms is dependent on the requirements ofthe other systems, the result is a complex interrelated struc-ture, which has to be taken into consideration in operationsplanning. Our interviews identified five elements of tacti-cal supply chain planning that significantly affect more thanone logistics subsystem:</p><p>1. Order packaging unit, i.e., the number of consumerunits that are combined to one order and distributionunit for supplying the individual stores</p><p>2. Store delivery pattern, i.e., the number of store deliver-ies per period and the specific days of delivery</p><p>3. Store replenishment lead time, i.e., the time betweenstore order and delivery</p><p>4. Store delivery arrival times and arrival time windows,i.e., the scheduled time of day or time window for storedelivery</p><p>Fig. 1 The part of thestationary FMCG supply chainfocused on in this paper</p><p>Industry Retailers distributioncenter Retail storeIndustry supplier</p><p>ConsumerDistribution center</p><p>Transportation Store</p><p>Retail system</p></li><li><p>4 H. Kuhn, M.G. Sternbeck</p><p>5. Roll-cage sequencing and loading carriers, i.e., theintegration of the store layout into packing processesand the loading aids selected for store delivery</p><p>The remainder of this paper is organized as follows.Section 2 presents an overview of relevant literature. Wethen discuss the methodology employed and outline thecompanies and interviewees who participated in our studyin Section 3. Section 4 categorizes the logistics networksof the participating companies according to the first objec-tive of our research. We discuss the allocation of SKUsto distribution stages and the segmentation of the grocerylogistics networks. Section 5 addresses the second objec-tive of this paper. Interrelated planning issues between thethree logistics subsystemsdistribution center, transporta-tion and storeare discussed in detail. Section 6 concludesthe paper with research contributions, perspectives and ideasfor future research.</p><p>2 Related literature</p><p>Retail distribution systems of supermarket chains alteredover time. Fernie and Sparks (2004) describe these changesas supply chain transformation. While in the past retail-ers were the passive recipients of products, today theymanage their own logistics network as channel captains(Fernie and Sparks 2004, p. 9). In the last 2030 years gro-cery retailers have built up distribution centers and nowchannel a large proportion of their product flows throughtheir own warehouses (Fernie et al. 2010, p. 895). Fernieet al. (2010) see this process as virtually complete in foodretailing in the UK. An interesting question is thereforewhat network configurations are the current result of thatprocess. De Koster and Neuteboom (2000) present a com-parison of seven supermarket chains in the Netherlands andprovide detailed analyses of network configurations of thecompanies investigated. However, there is little structuredinsight into the configuration of logistics networks operatedby grocery retailers.</p><p>If considered from a functional perspective, a retail logis-tics network of this kind can be divided into the subsystemsdistribution center, transportation and store (Sternbeck andKuhn 2010, p. 1020). Although operational costs in the sub-system store are higher than in transportation or warehous-ing, only little attention has been paid to these processesand their connection with upstream activities. Referringto the objectives of this study, instore operations are ofparticular interest as a comprehensive supply chainperspective is applied.</p><p>There is a slowly growing body of literature address-ing instore logistics. Nachtmann et al. (2010), Ramanet al. (2001) refer to two execution problems: inaccurate</p><p>inventory records, i.e., a difference between physical inven-tory and system data, and misplaced SKUs in stores, i.e.,the problem that items are not in the right place on thesales floor and are hard to find in the backroom, even wheninventory records are accurate. Raman et al. (2001) figureout that store processes and the increasing variety of prod-ucts are among the factors responsible for misplaced SKUsin the stores as most stores have deficits in managing thebackroom and promptly refilling shelves. Concerning inac-curate inventory records, picking accuracy in distributioncenters is also of fundamental importance. However, Ramanet al. (2001) see instore execution as the missing link inretail operations.</p><p>Motivated by high on-shelf-availability requirements andhigh inventory carrying and handling costs in the store,Kotzab and Teller (2005) addressed instore logistics pro-cesses, which they call a neuralgic business area (Kotzaband Teller 2005, p. 604). They closed the gap in retail sup-ply chain analyses by developing and testing an explorativematerials flow model of the final yards in the store. Theauthors point out that the overall aim of instore logistics isefficiency, and identified four instore problem areas: knowl-edge of cost and service levels, standardization, qualifiedpersonnel, and store design. Besides this, they recognizedthree aspects of upstream processes and the stores that areinterdependent. Late deliveries and product quality (i.e., thedelivery of damaged products) affect store level executionas well as the concept of roll-cage sequencing (i.e., the sort-ing of products on loading carriers oriented to the storelayout). Trautrims et al. (2010) build on the model offeredby Kotzab and Teller (2005) and provide two case stud-ies. However, the clear focus lies on instore processestheservices from upstream supply chain activities are treatedas a given.</p><p>Van Zelst et al. (2009) provide the cost structure of oneEuropean retail chain. According to this, instore operationalcosts account for 45 %, transportation for 22 % and ware-housing for 33 % of total operational costs of the internalpart of the retail supply chain. They studied instore handlingoperations intensively by differentiating between the fillingof shelves with single consumer units or with bundles (e.g.,trays) containing several units. The authors claim that futureresearch is needed to focus on the impact of case pack quan-tities on a store level, but also on picking operations in theretail warehouses (Van Zelst et al. 2009, p. 629).</p><p>In the literature stream addressing the problem of retailout-of-stocks, instore operations are discussed in the lightof the finding that the outlet is the stage in the supplychain that is responsible for the largest proportion of theresulting out-of-stock rate (Corsten and Gruen 2003, p. 614;Fernie and Grant 2008; McKinnon et al. 2007). However,McKinnon et al. (2007), Taylor and Fawcett (2001),Trautrims et al. (2009) remark that logistics studies have</p></li><li><p>Integrative retail logistics: An exploratory study 5</p><p>so far always stopped at the ramp of the outlet: the finalyards of the supply chain are ignored. Researchers con-duct root cause analyses and case studies to examine severalstages of the retail and consumer goods supply chain, andpartially touch on interdependencies between logistics sub-systems. Fernie and Grant (2008) provide an extract ofa case study of one UK-based grocery retailer in whichstore operations needed to be integrated with supply chainimprovements. The reduction of lead times and synchro-nization of transport schedules and store processes areparticularly mentioned. Corsten and Gruen (2003) claimthat reducing out-of-stock requires initiatives that cutacross functional boundaries which can require a funda-mental rethinking of retailer processes (Corsten and Gruen2003, p. 615). However, a structural approach to exploreor identify interdependencies in the retail supply chainwith the aim of better integrating instore logistics systemin supply chain planning has not so far emerged. Thisdeficit is the starting point of this study. The paper aimsto shed light on both the grocery logistics networks andthe resulting planning interdependencies when integratinginstore operations.</p><p>3 Methodology and description of interviewees</p><p>Retail research has not so far provided deep insights intogrocery logistics networks, and lacks an approach for study-ing planning interdependencies between instore operationsand upstream supply chain activities. The goal of thisresearch was therefore to broadly explore structures, pro-cesses and interrelations in grocery retail logistics. To dothis, we selected an open and flexible research design basedupon personal communication.</p><p>During this study, semi-structured face-to-face in-depthinterviews were conducted and accompanied by a short,semi-standardized face-to-face questionnair...</p></li></ul>


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