Optimizing the location of a fulfilment center: a case study

Abstract

E-commerce is a rapidly growing industry, and the customers’ expectations of fast deliveries put pressure on companies' delivery services. The lead times of the case company’s deliveries to their key markets are longer than ideally preferred, which impacts negatively on customer satisfaction. The aim of this study was to define the optimal location for an e-commerce fulfilment center, and how it would impact the lead times as well as costs. The research questions were: “Where would the most optimal location for the e-commerce fulfilment center be?”, “How does the relocation impact the lead time to the key markets?” and “How does the relocation affect the inbound and outbound costs?”. Comparisons were made comparing the current warehouse and a new potential e-commerce fulfillment center. The method chosen for the research was quantitative research with a case study approach. The data was gathered from the case company’s ERP system, their 3PL partners, and from the potential new fulfillment center. The data was worked on in Microsoft Excel, where calculations were made for cost comparisons. The optimal fulfillment center location was calculated by using a Center of Gravity-calculation. The results showed that the most optimal e-commerce fulfillment center location would be by the new potential fulfillment center, lead times would hence decrease by an average of 2.5 days to 4/5 key markets, and the total costs would decrease by 23.77% if the fulfillment center was to be relocated.