Developing Cost-effective Operations for the e-Grocery Supply Chain

Abstract

Cost-effectiveness in the e-grocery supply chain, especially in last mile operations from the distribution centre or store to the customer location, has become a major challenge. The existing e-grocers have developed different kinds of logistical improvements to maintain better customer service and lower costs in the supply chain. However, in spite of the promising development of the e-grocery business, there are only a few e-grocers who have made improvements successfully leading to profitable operations. If e-grocers want to reach a significant market share, they have to achieve lower supply chain costs as well as a wider customer base. To do this, operations in the supply chain have to be improved radically and linked together successfully. In addition, strong supplier and customer relationships are needed. This paper identifies existing operational models and presents suggestions as to how e-grocers can develop more effective operations for the supply chain. The effects of different receiving alternatives, home delivery solutions, services, supplier and customer relationships, demand variation and operations in the distribution centre are studied. Based on benchmarks from existing e-grocers, results from our research and experiences from an e-grocery pilot operation in the Helsinki metropolitan area, we study the best logistical practices for the e-grocery supply chain. In addition, we present one pathway to improve e-grocery efficiency.