Deliver fresher food: A pick-to-zero transformation for retailers

By Kalyan Simha and Shantanu Baviskar

Editor's Note: The SCM capstone Fresher Food Supply: Evaluating the Impact of Pick-to-Zero Strategy on Freshness of Produce Using Discrete Event Simulations was authored by Kalyan Simha and Shantanu Baviskar and supervised by Dr. Christopher Mejía Argueta ([email protected]) and Eva Ponce ([email protected]). For more information on the research, please contact the thesis supervisors.

Inventory holding and management constitute the cornerstone of every retailer’s business operation. Retailers derive significant advantages from maintaining inventories due to economies of scale. However, these benefits may not extend to perishable goods, as holding inventory can result in the aging of products and reduced freshness. Freshness is a critical factor in a consumer’s purchasing decision; many shoppers actively reach for the back of supermarket shelves to purchase the freshest products. Hence, improving the freshness of products can help grocery retailers not only retain customers but also develop a competitive edge in the market.

Our research seeks to help grocery retailers improve the freshness of products by quantifying freshness and implementing a pick-to-zero operation. So, what is pick-to-zero? A pick-to-zero strategy is an order-picking method where shipments are received, put away, picked, and shipped out on the same day. Doing so reduces the inventory holding time which increases the freshness of products. The fundamental question we explored in our research is whether pick-to-zero can improve freshness while avoiding incremental operational costs.

We compared current processes with pick-to-zero using three key metrics: freshness, cost, and excess inventory. Freshness was measured as “speed to the consumer,” while costs were divided into operational, and logistical, to assess the impact of process changes. The faster the products reach the end consumers, the fresher the products.

The results were analyzed using two critical scenarios: (1) Maximum possible freshness achieved using pick-to-zero and daily shipments inbound from suppliers and outbound to stores and (2) impact on freshness by using a consolidation center upstream to mitigate increased costs due to daily shipments and under-utilized capacity of trucks.

The results indicate that pick-to-zero improves product freshness by 25% but increases inbound logistics costs by 34% and warehouse operations costs by 20% due to higher labor requirements. Furthermore, a lead-time reduction also lowers excess inventory by 22%, although truck capacity may not be fully utilized.

To combat the increase in costs and to better utilize truck volumes, a consolidation center was introduced. The consolidation center reduces daily shipment costs by 6% and increases freshness by 9%. Its location is strategic, with three simulated options: (1) near the distribution center, (2) near the supplier, and (3) in a target market. Results show a 20% to 25% freshness improvement near the distribution center, 9% in a target market, and 4% to 7% near the supplier. Suppliers closer to the distribution center may not need consolidation. The simulation highlights pick-to-zero’s potential to enhance freshness through network design changes.

Given that all order quantity values are determined using forecasts and orders are placed at least eight days in advance, forecast accuracy is instrumental for the success of a pick-to-zero operation. Analyzing data set from a grocery retailer, we were able to showcase that as forecast accuracy for SKUs increases, freshness can increase by up to 20%. Furthermore, as the variability of forecast accuracy decreases, freshness can increase up to 7%. Hence, forecast accuracy and variability can also help deliver significant improvements in freshness.

New MIT Capstone projects are presented on scmr.com on the second and fourth Wednesdays of each month. If your educational institution is interested in publishing Capstone project summaries on Supply Chain Management Review, please contact Editor Brian Straight at [email protected].

Thus, our research highlights three key findings for a pick-to-zero model for perishable-good-related organizations.

1. Pick-to-zero significantly increases the freshness of products when daily shipments from suppliers assist the operations.
2. The increase in logistics costs can be offset by using consolidation centers to pool inventory from multiple suppliers daily and deliver products to multiple distribution centers. Operationalizing a pick-to-zero operation requires strategic planning for the location of the consolidation center and suppliers to achieve freshness improvement targets.
3. With higher forecast accuracy and lower lead times, a pick-to-zero model allows retailers to maintain lower safety stock and cycle stock in the system, which further increases the freshness of products.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year capstone projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

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