Modeling in retail: how to meet demand and customer expectations

The Christmas holidays are swiftly approaching and it’s time for the traditional sales. Soon, visitors to shopping malls and online stores will be buying presents and other products with discounts, and retailers will rejoice at this increase in demand.

Besides the buying frenzy and strong sales at the end of the year, retail companies may face problems caused by the growing volume of orders, deliveries, and returns. Also, retailers need to calculate inventory correctly. Simulation modeling helps them to cope with these challenges.

Why modeling and how it applies to retail?

With the help of AnyLogic software it is possible to simulate logistics processes: from the "first-mile" – the path of parcels from warehouses to sorting centers – to the "last-mile" – delivering parcels to post offices, pickup points, and customer’s doorsteps.

AnyLogic simulation modeling allows you to consider warehouse and sorting center constraints, "first-mile" and "last-mile" transport conditions, as well as testing different scenarios. The simulation results help retailers avoid long delays in order fulfillment.

The main advantages of AnyLogic are flexibility, built-in industry libraries, integration with GIS maps, and the ability to run models right in your browser thanks to AnyLogic Cloud. Let's take a closer look at how AnyLogic can be used in retail companies for specific tasks – in logistics and more.

Logistics for retail companies

The retail company, Lojas Renner S.A., which operates in the fashion and home decoration segments in Brazil, Argentina, and Uruguay, wanted to change their delivery process. Lojas Renner S.A. envisioned doing this by managing dedicated "last-mile" couriers. In addition, the company planned to use retail stores as transit points for "last-mile" deliveries and to standardize tracking of internet orders.

AnyLogic helped simulate the "last-mile" delivery process for given routes. One of the results showed a shortage of couriers in the warehouse, which explained why some orders were not fulfilled. This led Lojas Renner S.A. to increase the number of couriers.

Another example of using models for order fulfillment planning is a digital twin delivery forecasting project. An American fitness equipment manufacturer wanted to ensure that its US supply chain ran smoothly. A team from Accenture Argentina created a digital twin for this supply chain – a dynamic system model that reflected its current state using real-time data.

Using a discrete-event approach, the team modeled, in AnyLogic, processes across all elements of the supply chain: material manufacturers and assembly plants, distribution centers, and retail stores.

The digital twin helped forecast the entire supply chain cycle – from order receipt to customer delivery – and efficiently allocate inventory. Thanks to the digital twin, there was a 57% increase in accuracy of delivery forecasts and a 20% reduction in inventory allocation costs.

Checkouts in retail outlets

In the run-up to Christmas and New Year, shoppers not only actively choose gifts and evening wear, but also food for the festive table.

As you know, service in checkout areas becomes especially important during the holidays and sales periods as crowds of customers accumulate at the exits to pay for their goods. Therefore, retailers should take care of customer satisfaction at the last stage of shopping.

The next example of a simulation application is the planning of checkout areas in supermarkets for Sonae MC. They are the leading food retailer in Portugal with more than 1,300 outlets.

Sonae MC wanted to improve service quality and customer satisfaction without increasing operating costs. For this purpose, the consulting company LTP built a multimethod simulation model in AnyLogic which included agent-based and discrete-event approaches.

In AnyLogic, it was possible to simulate any configuration of the checkout area and specify the characteristics for different scenarios. It was also possible to use different Java functions in order to simulate real-world process features as accurately as possible. The flowchart below shows the stages of customer service at checkout.

Testing of alternative scenarios revealed opportunities to improve customer service in checkout areas. The company switched some customers to self-service checkouts, and due to this, queues were reduced. As a result, the service quality improved and operating costs decreased by almost 12%.

More details about the project can be found in this video presentation and PDF.

Supermarket food restocking

During the pre-holiday period, there is an increased demand for food. This means that retailers, in addition to providing their regular service, also need to monitor the availability of goods. And at the same time, they have to focus on reducing the percentage of spoilage.

In order to optimize the inventory management process for fast-moving consumer goods (FMCG), technology company ITC Infotech developed an AnyLogic simulation model. They used this to determine the volume of production at which the level of service and quality of goods would remain sufficiently high.

A multi-echelon distribution network typically consists of a factory, a warehouse, and several distribution centers. For this project, specialists from ITC considered two levels, which were represented in the model as populations of agents: the factory, which generates orders, and the distribution center, which calculates how quickly and successfully demand is met. The results of the simulation helped to select the appropriate restocking policy for FMCG.

In conclusion

New Year’s holidays and sales are a great opportunity for retailers to not only make a substantial profit at the end of the year, but also to meet the expectations of their customers through quality service and a wide range of products.

AnyLogic is able to help retailers at different stages, from goods production to payment at checkout, or even delivery. Simulation allows them to deliver orders to customers on time, properly plan checkout areas, and manage inventory.

The quality of service and product availability increases customer satisfaction and their desire to return to those online stores and shopping malls which take care of their clients. Are you ready for the holidays yet?

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