Impact of Replenishment Frequency Driven Product Allocation in a Retail Supply Chain

Abstract

Distribution Centers (DC) perform a key role in the order fulfillment process by intermittently stocking products to be redistributed to different retail stores. An important strategic decision that has implications on cost and service levels in the long run is the allocation of products to the distribution centers. When fast moving products that generate large truckload volumes and/or have high replenishment frequency are stocked at distribution centers located closer to the retail stores, the miles traveled will be reduced resulting in the reduction of transportation costs. This product allocation strategy is called replenishment frequency driven distribution strategy. Explicit consideration of replenishment frequency requirements during product allocation decisions may be advantageous in comparison to imposing the requirements post decision making. Two optimization models were formulated to aid in product allocation decisions with and without replenishment frequency driven considerations. A numerical study was performed to yield insights into potential cost savings due to explicit consideration of replenishment frequency driven distribution strategy.