Factory Gate Pricing: An Analysis of the Dutch Retail Distribution

Factory Gate Pricing (FGP) is a relatively new phenomenon in retail distribution. Under FGP, products are no longer delivered at the retailer distribution center, but collected by the retailer at the factory gates of the suppliers. Owing to both the asymmetry in the distribution networks (the supplier sites greatly outnumber the retailer distribution centers) and the better inventory and transport coordination mechanisms, this is likely to result in high savings. A mathematical model was used to analyze the benefits of FGP for a case study in the Dutch retail sector. Extensive numerical results are presented to show the effect of the orchestration shift from supplier to retailer, the improved coordination mechanisms, and sector-wide cooperation.