Adaptation of Shipment Consolidation and Distribution Network Design to Omni-channel Retailing

Abstract: Title: Adaptation of shipment consolidation and distribution network design to omni-channel retailing Authors: Johan Deniz, Martin Månsson Supervisor: Joakim Kembro, Department of Industrial Management and Logistics, Faculty of Engineering, Lund University Problem description: Global retailers tend to have complex distribution networks. A part of the complexity stems from trade-offs in deciding which distribution mode to choose when transporting goods from the suppliers to the customers. Using the right distribution mode for a specific situation is key to reduce costs and increase efficiency in the distribution network. With the rising need for flexibility in fulfilment methods and distribution channels due to omnichannel retailing, the need for consolidation of goods from multiple suppliers may rise to maintain efficient transportation. Furthermore, to attend to the increasing need for flexibility in the supply chain, retailers need to restructure their distribution network design. Purpose: The purpose of the thesis is to identify and analyse the role of consolidation points within a distribution network and provide potential distribution network designs for IKEA to support omni-channel retailing. Research questions: What is the role of a consolidation point within a distribution network and how will it change to adapt to omni-channel distribution? How can the distribution network, in terms of nodes and links, be designed to adapt to omni-channel retailing at IKEA? Methodology: To find solutions that align consolidation points, distribution network design, and omni-channel retailing, a frame of reference for distribution networks, omni-channel retailing and distribution optimisation was created. The frame of reference ended in an analytical framework which was applied through a mixed methods research strategy at IKEA. The two methods lead to triangulation of qualitative and quantitative data through interviews with senior employees and practical optimisation within a distribution network model. Thereby, achieving validity and reliability throughout the research process. Conclusion: The role of consolidation points within IKEA is to store and merge goods close to the suppliers before being sent to another node in the distribution network. The consolidation points function excels with an increased number of logistical nodes since it consolidates smaller flows and creates better product mixes in the distribution. Different fulfilment methods do not need to increase in tandem or correspond with the number of different sales channels within omni-channel retailing. Instead, the fulfilment methods need to be integrated from separate distribution nodes for each channel into nodes that can provide the product with minimum cost at enough speed, service level, and quality to all sales channels. In future distribution network design, there need to be a higher focus on multi-functionality which implies that solutions are integrated in fewer variants of nodes, to support and align with the omni-channel concept. Logistics nodes need to be closer to the end customer, providing shorter last mile distribution and reaching the customer quicker. Keywords: Consolidation point, distribution network design, omni-channel retailing, distribution modes, delivery solutions, sales channels.