Evaluating cost-to-serve for a retail supply chain

Driven by decreasing inventory storage space in stores and a corresponding need to increase delivery frequency, a major retailer is considering adding cross dock nodes, between distribution centers and stores, to its supply chain network. Currently, distribution centers serve stores directly. The retailer would like to understand if introducing an additional node allows for cost-effectively increasing delivery frequency. In the proposed scenario, the additional node would receive products from both the distribution center and upstream suppliers to serve the stores. Implemented as a discrete-event simulation, this cost-to-serve model compares the scenarios by applying costs to simulated logistics events and resource levels. Results suggest introducing new nodes is cost neutral, even considering the reduced transportation costs.