Building Sustainable Supply Chains in the Era of e-Commerce

Abstract

Consumer preferences are driving changes within the retail space. E-Commerce is growing rapidly and there are increased pressures on companies to be environmentally friendly, yet still cost-competitive. Therefore, it is of the utmost importance for retailers to adjust their distribution network to accommodate these new customer preferences. Four key steps of this process are (1) measuring the current capacity of the system, (2) forecasting future demand, (3) adjusting capacity in order to meet this forecasted demand while minimizing cost, and (4) quantifying the environmental impact of each adjustment. Our research focuses on applying these four steps to Coppel, a Mexican retail chain. A time study and capacity analysis were completed to understand current-state capacity. An annual forecast was created using the Holt-Winter Method. This forecast was used as an input for our developed Mixed Integer Linear Program (MILP) that minimizes cost while still meeting customer demand. Finally, the Greenhouse Gas (GHG) method was used to quantify the environmental impact of each cost-reduction measure that the MILP suggests. Our approach reduced the processing cost per unit for Coppel by 4.8% for a total savings of $126M when compared to their previous current-state. This result verifies that our four-step approach can be utilized to reduce cost and therefore yield higher profits for companies in the retail space.