Optimizing Verizon distribution center and logistics operations

Abstract

The recent surge of direct-to-customer (DTC) orders in the retail industry has increasingly put pressure on omni-channel retailers' supply chain networks to offer faster and cheaper delivery while maintaining their supply chain cost position and committed service level agreements. As warehousing and logistics operations are not part of the core business for most omni-channel retailers, both operations are often outsourced to third-party logistics (3PL) companies. This makes it challenging for omni-retailers to actually improve these operations to handle the surging DTC orders through the relationships with their 3PL partners. This thesis presents cost analysis frameworks for improving the effectiveness of warehousing and logistics cost structures in outsourced omni-channel retail distribution networks. The thesis also conveys short-term and long-term strategy recommendations for reducing supply chain costs of these networks through a case study based on Verizon's retail supply chain network. First, a short-term strategy is proposed through leveraging the key cost drivers identified in a should-cost model developed to simulate receiving, pick-pack, and verification operations in distribution centers (DCs) based on a set of parameter inputs, such as volume, labor rate, labor standard time, facility location, staffing strategy, etc. This zero-based should-cost modeling technique can help the hiring company enhance their bargaining power in contract negotiation with 3PL companies in order to realize cost savings and collaborate on implementing new technologies. Second, a long-term strategy is formed to provide frameworks for omni-channel retailers to reconsider the pros and cons of outsourcing and to think of building sustainable and collaborative relationships with 3PL companies for the coming challenges in the omni-channel retail industry. The recommended execution plan is to stay with a centralized DC model and transition to partnering with capable 3PL service providers to pool ground shipments in order to achieve zone-skipping before the last mile delivery for the future.