On the relation between urban road network and distribution centre location strategy of Franchise retail firms

Abstract

Franchise retailers such as supermarkets and convenience stores have achieved greater efficiency in delivering products to their chain stores by locating distribution centres (DCs) within or near cities. In this study, we propose that the reduction of product transportation time due to the construction of intra-urban roads facilitates the location of distribution centres. To this end, we model the inventory management behaviour of franchise retailers and show that distribution centres have two functions: (1) consolidating the inventory holding risk faced by individual chain stores and (2) achieving larger lot sizes when purchasing goods from outside the city. We then analyse the effects of facilitating logistics by improving intra-city roads on reorganizing the location patterns of chain stores and distribution centres in the city and on improving the convenience of shopping for consumers.