An innovative multivendor warehouse in e-grocery: an activity based model to assess different configurations

Despite e-grocery is growing in Italy, its penetration on the overall grocery sales is still low if compared with other European countries (e.g. UK, Germany, France). Afterwards the incoming of new players in the e-grocery landscape, traditional retailers are attempting to enter the online market. Though, this decision introduces some challenges. On the one hand, the initial volumes of e-grocery are not big enough to justify a dedicated warehouse. On the other hand, the in-store picking, which is more suitable for low volumes, is not efficient enough to assure the economical sustainability of the initiative; moreover, it results to be not effective, especially when volumes increase. In order to overcome these barriers, this study investigates an innovative collaborative logistic solution that could reduce the overall cost per order. It considers a multivendor warehouse with inventories and deliveries shared among three different retailers. First, the warehouse layout is defined. Second, the main activities performed in the warehouse are identified and the related costs estimated through an activity-based approach. Third, the total cost per order is computed and compared to the base-case of the single merchant warehouse. The solution is tested in seven picking scenarios, obtained varying the products allocation and the batching policy, aiming at finding the most efficient configuration. Finally, a sensitivity analysis on selected parameters is performed. If compared to the traditional one-vendor warehouse, the multivendor solution implies a cost reduction per order between 14% and 20%. This work can be considered the starting point for an innovative logistic solution the retailers can rely on to enter the e-grocery business. In particular, the developed model may represent a useful tool in the definition of the online channel strategy: the study clearly shows the potential benefit of sharing the logistic infrastructure instead of building a stand-alone warehouse.