A mathematical approach to designing central vs. local ordering in retail

To gain efficiencies in the supply chain, retailers are (re) organizing their ordering processes either ‘centrally’, ‘locally’, or some combination of the two. Conventional wisdom is that centralized ordering leverages scale and improves efficiency. On the other hand, ‘decentralized’ ordering increases the responsiveness to the customer by letting local stores merchandise and order based on local preferences. Based on our experience with a mid-size retailer in the USA, this paper presents an optimization model that allocates buyers between a ‘central’ buying organization and ‘local’ retail outlets.