The Effects of Smoothing Delivery Flows in Retail Supply Chains

Demand variation combined with inventory minimizing ordering policies cause high variation in volumes going through the retail supply chain. Highly fluctuating volumes lead to inefficient use of labor capacity in the retail supply chain having an increasing effect on labor costs. By smoothing store orders retailers can create a smoother delivery flow in the retail supply chain leading to more effective capacity management and decreased labor costs, which represent a large share of the total operational costs of the retail supply chain. This thesis explores the effects of smoothing delivery flows in retail supply chains and quantifies the impact of delivery flow smoothing on capacity utilization and labor costs in stores and warehouses. The research is conducted as a mixed methods study, where qualitative data is collected from one retailer and quantitative data from three stores of another retailer. Interviews represent the qualitative part of the research and are conducted for managers working in varying functions of the retail supply chain. Quantitative data consists of demand forecast and delivery projection data, which are used as inputs for store shift simulation together with information on employees, legislation and other simulation parameters. The data and findings from store shift simulation are used to provide a detailed overview on the effects of delivery flow smoothing on store labor utilization and costs, and for creating a simplified method for estimating store and warehouse labor utilization. The findings of this research show how smoothing delivery flows in retail supply chains affects different areas of the retail business. This research confirms the link between smoother delivery flows and higher capacity utilization and shows how labor utilization can be estimated based on distribution of workload within a week. The labor cost impact estimated in this research reveals major cost saving potential in handling costs through smoother flow of goods in the retail supply chain. However, smoothing delivery flows does not lead to a cost-optimal solution from an inventory perspective. Overall, smoothing delivery flows affects customer service levels, employee satisfaction, handling efficiency, easiness of resource planning and overall operational reliability and stability of the retail supply chain