Modelling the impact of factory gate pricing on transport and logistics


Over the past year, one of the biggest issues to arise in the UK grocery distribution industry is that of Factory Gate Pricing (FGP). The use of FGP within the grocery sector is one of the largest applications of the concept. This paper quantifies the efficiency gains that can be achieved by redesigning the inbound distribution network. An action-based research approach has been taken, working directly with a major UK retailer, which was the first grocery company to adopt FGP. Our methodology involved interviews with relevant personnel and modelling. The results found that the use of consolidation networks for less than truckload consignments resulted in a reduction of 25% in the vehicle miles required to get ambient products from suppliers to the distribution centres, and 23% for fresh products. The paper concludes that, with greater coordination of the inbound logistic flows for grocery retailers, there is the potential to deliver a significant reduction in transport demand with both economic and environmental benefits.

Proceedings of the 8th International Symposium of Logistics, 6th-8th July, Seville, Spain, 6 pages