PAYLESS SHOESOURCE, INC.

:
SUPPLY CHAIN DESIGN

FACULTY: JOHN VANDE VATE

STUDENT: BUDHADITYA GUPTA

LEADERS IN LOGISTICS REPORT

The Logistics Institute
Georgia Institute of Technology
Atlanta, Georgia 30332
2002

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1. Introduction
Payless ShoeSource, Inc. (PSS), with approximately 5,000 stores in
the United States, Canada and Latin America, sells on the order of
200 million pairs of shoes a year, more than any other retailer in North
America.
When a Payless store sells a particular shoe, it is scanned at Point
of Sale (POS) and the information is sent to the Topeka, Kansas Dis-
tribution Center (DC). There, a replacement is picked and put into a
truck headed for the cross dock that serves the store. Payless utilizes
over 50 such cross docks. The truck does not leave Topeka until it is
filled with shoes, all destined for stores served by the same cross dock.
Therefore, the more stores the cross dock serves, the faster the trailer
in Topeka fills. From the cross dock, the shoes are delivered to stores
by smaller trucks running regular routes according to a fixed schedule.
The delivery process from the Kansas DC to the cross docks is load-
driven, whereas the delivery process from the cross docks to the stores
is schedule-driven.
PSS stores are typically very small, and carry just one or two pairs
of each size and style of shoe. Consequently, quick replenishment is
important to avoid loss of sales due to stockouts. Since serving more
stores out of a given cross dock shortens the time to fill the trailer,
sales can be improved by increasing the number of stores each cross
dock serves, or by reducing the number of cross docks. Moreover,
reducing the number of cross docks increases the volumes they handle,
offering economies of scale in cross dock operations. On the other hand,
reducing the number of cross docks increases the distance to the stores
they serve, and so raises delivery costs.
PSS was interested in determining the number and location of cross
docks, in order to guarantee speedy delivery to stores. Moreover, the
company was trying to redesign its global supply chain network to ad-
dress such issues as: expansion into Latin America, whether to open
a second DC, and how to speed initial deliveries to stores from inter-
national manufacturers. This can be a daunting task for a retailer like
Payless ShoeSource, which sources products from over 15 countries,
and distributes them through approximately 50 cross docks to around
5,000 stores.

2. Model
A team of faculty and students working at The Logistics Institute,
Georgia Tech, developed a linear optimization model to address these
issues for Payless.
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The model works on the principle that from the production stage to
the final stage of delivery to the customer, shoes pass through a definite
sequence of steps. Each step of the sequence requires a particular
type of capacity, and each facility in the supply chain can provide
certain capacities at certain costs. The model ensures that the shoes
pass through the required sequence of steps, and are delivered to the
customer within a specified time and at minimum cost.
The model allows analysts to introduce facilities, separately endow
these facilities with various capacity types, and associate with each
product the sequence of capacity types it requires as it moves to market.
For example, shoes made outside the United States might require the
following (somewhat simplified) sequence of capacities:
(1) Production: Shoes are made.
(2) Containerization: Shoes are loaded into an ocean container.
(3) Vessel loading: The ocean container is loaded onto a vessel.
(4) Vessel unloading: The ocean container is unloaded from the
vessel.
(5) Receiving: The shoes are received/put away at a DC.
(6) Order processing: An order for the shoes is processed at the
DC.
(7) Pair picking: The shoes are picked at the DC and shipped to
the cross dock.
(8) Delivery: The cross dock delivers the shoes to the store.
The model automatically creates links to carry the product from a
facility with one type of capacity to a facility with the next type of
capacity that it requires. Naturally, not all such links are possible or
desirable (for example, containerization on one continent, and vessel
loading on another).
The decision variables in the model are associated with the set of
paths in the supply chain network. The variables indicate how many
shoes flow on each path of the supply chain. Constraints in the model
ensure that time taken from certain key steps, such as order processing
or shipment to the stores, is less than the allotted time. The objective
function minimizes cost.
We have consistently been able to formulate and solve to optimality
practical problems with approximately 5,000 stores and 50 cross docks,
in less than 15 minutes. Results suggest that Payless could attain the
desired level of service with significantly fewer cross docks.

E-mail address: john.vandevate@isye.gatech.edu