Modeling the value to retailers due to redesigning the grocery supply chain

Abstract

ES3, a wholly owned subsidiary of C&S Holdings, is a third party grocery and consumer goods distribution company operating a large distribution facility in York, PA. Under the traditional model for grocery distribution, manufacturers ship products to their manufacturing distribution centers (MDCs), where several products from the same manufacturers are combined in shipments and sent to retail distribution centers (RDCs). The distributors operating the RDCs combine product from several manufacturers to be shipped to individual retail outlets. Currently, in Phase I of its operations, ES3 improves on this model by replacing MDCs from several manufacturers with a single facility, consolidating orders from several manufacturers and reducing lead time and optimal lot sizes for distributors. Eventually, ES3 will reach Phase II of its operations, where certain products will bypass RDCs completely and be delivered directly to individual retail outlets. This thesis is concerned with efforts to build a model to quantify the benefit distributors receive from using ES3 in both Phase I and Phase II of its operations. The model was built using shipping, receiving, operations, and transportation data from C&S under the assumption that C&S was a good proxy for other distributors which are potential customers for ES3. The purpose of building the model was two-fold. First, ES3 would like to recruit distributors as customers and charge them for its services. The model will help demonstrate the savings these distributors can achieve. Second, distributors' savings increase as the number of manufacturers stored at ES3 increases. ES3 hopes to demonstrate this effect through the model and momentum for growth. The model quantifies savings in inventory costs,

(cont.) transportation costs, and operations costs as a function of the number and types of products the user chooses to source from ES3. These savings vary dramatically depending on the size of the distributor using the model, but can be very significant, especially for large distributors.