Publication Date
Authored by
Feng Zhu, Sai Priyanka Jarugumilli
Advisor(s): Özden Tozanlı
Topic(s) Covered:
  • Inventory
  • Strategy
  • Urban Logistics

The world’s largest coffee chain is looking to cater to different patterns of customer demand especially in metro areas that are densely packed with their stores. With more of the demand becoming mobile and customers gravitating towards curbside pick-up of orders, the leading coffee retailer is looking to redesign their cafes to cater exclusively to this segment of demand. To accommodate these redesigned smaller stores, the retailer now seeks to enable more frequent inventory distribution that can allow stores to meet the consumer demand while storing less inventory on hand. In this project, we investigated a new network design where the concept of micro-fulfillment centers is added to the existing network to enable this frequent distribution. By establishing Urban Distribution Centers (UDCs) in the metro markets, stores have the flexibility to place small orders and receive unit product deliveries more frequently instead of bulk deliveries. This project simulated four different scenarios while varying the number of distribution centers and proposed the use of larger stores as alternative distribution centers. We first performed a greenfield analysis to decide where and how many distribution centers to build. Following this, we simulated the scenarios to mimic the costs incurred for implementing micro-fulfillment. Finally, we performed a sensitivity analysis to understand the impact of delivering more than once a day and delivering different products at different times of the day on different cost parameters. As a result, we observed at least a 40% increase in total cost across all scenarios, predominantly due to investment in new infrastructure for UDCs. Despite the micro-fulfillment strategy requiring an initial monetary investment, it would enable the retailer to open distribution centers located closer to the stores. This strategy helps facilitate multiple deliveries of inventory to the stores while covering lesser total distance travelled and powers Starbucks with a flexibility in delivery to cater to urgent store orders. Finally, micro-fulfillment further paves the way for the retailer to transform its conventional cafes and open newer, smaller stores, delivering significant savings in rent and labor costs.

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