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Enterprise-Wide Optimization of Total Landed Cost at a Grocery Retailer

Author

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  • Feryal Erhun

    (Management Science and Engineering, Stanford University, Stanford, California 94305)

  • Sridhar Tayur

    (Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

We describe an enterprise-wide tool for tactical planning at a grocery retailer. The tool enables a “total landed cost” perspective by coordinating decisions across functions of the supply chain. It dynamically optimizes across logistics, purchasing, and warehouse management, while considering the necessary joint replenishment economies and accounting for a wide variety of complexities, such as discounts on total order quantity, intermittent demand, multiple distribution centers, vendor deals and forward buys, and promotions. The application combines appropriate operations research techniques to solve the problem; furthermore, it is created in the newly available information technology infrastructure. The entire application “sits above” and coordinates existing execution tools from commercial vendors by setting key operating targets and providing operational guidance.Within weeks of a pilot, we observed a reduction in on-hand inventories, an increase in service levels, and substantial improvements in logistics decisions. The total landed cost is substantially lower---with an improvement of 20.8% of operating costs, or 11.6% of net profits---while providing superior fulfillment to the stores.

Suggested Citation

  • Feryal Erhun & Sridhar Tayur, 2003. "Enterprise-Wide Optimization of Total Landed Cost at a Grocery Retailer," Operations Research, INFORMS, vol. 51(3), pages 343-353, June.
    • Handle: RePEc:inm:oropre:v:51:y:2003:i:3:p:343-353
    DOI: 10.1287/opre.51.3.343.14953
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    References listed on IDEAS

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    1. Segerstedt, Anders, 1994. "Inventory control with variation in lead times, especially when demand is intermittent," International Journal of Production Economics, Elsevier, vol. 35(1-3), pages 365-372, June.
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    Cited by:

    1. Halkin Andrii, 2020. "Assessing the Utility of Retailer Based on Generalized Costs of End-Consumers," Foundations of Management, Sciendo, vol. 12(1), pages 31-42, January.
    2. Vikram Tiwari & Srinagesh Gavirneni, 2007. "ASP, The Art and Science of Practice: Recoupling Inventory Control Research and Practice: Guidelines for Achieving Synergy," Interfaces, INFORMS, vol. 37(2), pages 176-186, April.
    3. Nihat Altintas & Feryal Erhun & Sridhar Tayur, 2008. "Quantity Discounts Under Demand Uncertainty," Management Science, INFORMS, vol. 54(4), pages 777-792, April.
    4. Sanjay L. Ahire & Michael F. Gorman & David Dwiggins & Oleh Mudry, 2007. "Operations Research Helps Reshape Operations Strategy at Standard Register Company," Interfaces, INFORMS, vol. 37(6), pages 553-565, December.
    5. Banu Yüksel Özkaya & Ülkü Gürler & Emre Berk, 2006. "The stochastic joint replenishment problem: A new policy, analysis, and insights," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(6), pages 525-546, September.
    6. Flapper, Simme Douwe P. & González-Velarde, José Luis & Smith, Neale R. & Escobar-Saldívar, Luis Jacob, 2010. "On the optimal product assortment: Comparing product and customer based strategies," International Journal of Production Economics, Elsevier, vol. 125(1), pages 167-172, May.
    7. Fleischmann, M. & Hall, J.M. & Pyke, D.F., 2005. "A Dynamic Pricing Model for Coordinated Sales and Operations," ERIM Report Series Research in Management ERS-2005-074-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

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