Joint Replenishment and Supply Chain Actions in the Retail Grocery Industry: Two Essays

Abstract

This study investigated supply chain management practices in the retail grocery industry from two perspectives. First, the operational performance objectives were examined by developing and testing a periodic review, joint replenishment model and heuristic. Joint replenishment policies, designed to coordinate the ordering of multiple items, can reduce inventory costs by synchronizing transportation and replenishment decisions (Cetinkaya and Lee, 2000). A fully specified model was developed taking into account the cost disadvantage of over-declared shipments. Based on the performance of the Full model, a Truck heuristic was proposed to fill a truck with each order. By varying the model parameters, the study demonstrated the large impact transportation costs had on total inventory costs and the viability of the Truck heuristic, even for moderate differences in transportation rates. A simulation study tested violations of the demand normality assumption and found the Full model suboptimized the order interval and base stock levels under non-normal demand conditions. The result was a 2 percent cost increase over the expected costs in the Full model. The primary cost drivers were positive or negative deviations from truckload shipments and higher than expected demand during the order interval and replenishment period.

The second essay examined the strategic objectives of the retail grocer using the Schumpeterian perspective to relate supply chain actions, market-based actions, and firm performance in a longitudinal study. A structured content method was used to code articles reporting on supply chain and market-based activities. The study found that higher levels of supply chain and market-based actions, a source of competitive advantage, resulted in higher sales growth. Unexpectedly, firms engaged in a broad range of supply chain activities realized a decline in sales, suggesting that a more narrow focus on specific supply chain programs provided greater financial benefits to firms in the retail grocery industry. An exploratory study using cluster analysis found grocery retailers used a variety of strategies. Larger firms were more likely to focus on market-based strategies and realized the largest sales growth. Smaller firms, on the other hand, tended to choose balanced or supply chain-focused strategies, while still realizing average sales growth.