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Ship-pack optimization in a two-echelon distribution system

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  • Wen, Naijun
  • Graves, Stephen C.
  • Justin Ren, Z.

Abstract

In large distribution systems, distribution centers (DC) deliver some merchandize to their retail stores in size-specific packages, also called ship-packs. These ship-packs include cases (e.g., cartons containing 24 or 48units), inners (packages of 6 or 8units) or eaches (individual units). For each Stock Keeping Unit (SKU), a retailer can decide which of these ship-pack options to use when replenishing its retail stores. Working with a major US retailer, we have developed a cost model that balances DC handling costs, store handling costs and inventory-related costs at both the DC and the stores, and therefore can help to determine the optimum warehouse ship-pack for each SKU. We implement our model for a sample of 529 SKUs, and show that by changing ship-pack size for about 30 SKUs, the retailer can reduce its total cost by 0.3% - 0.4%. Interestingly, we find that most of the cost savings occurs at the DC level.

Suggested Citation

  • Wen, Naijun & Graves, Stephen C. & Justin Ren, Z., 2012. "Ship-pack optimization in a two-echelon distribution system," European Journal of Operational Research, Elsevier, vol. 220(3), pages 777-785.
    • Handle: RePEc:eee:ejores:v:220:y:2012:i:3:p:777-785
    DOI: 10.1016/j.ejor.2012.02.003
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    References listed on IDEAS

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    Cited by:

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    2. Madison J. Bixler & Dorothée Honhon, 2021. "Exploring the Connections between Backrooms, Inventory Record Inaccuracies, and Waste," Sustainability, MDPI, vol. 13(17), pages 1-12, August.
    3. Broekmeulen, Rob A.C.M. & Sternbeck, Michael G. & van Donselaar, Karel H. & Kuhn, Heinrich, 2017. "Decision support for selecting the optimal product unpacking location in a retail supply chain," European Journal of Operational Research, Elsevier, vol. 259(1), pages 84-99.
    4. Soto Cardona, Osman Camilo & Mejía Argueta, Christopher & Sarmiento, Alfonso Tullio, 2015. "A cost-efficient method to optimize package size in emerging marketsAuthor-Name: Gámez Albán, Harol Mauricio," European Journal of Operational Research, Elsevier, vol. 241(3), pages 917-926.
    5. Thomas Wensing & Michael G. Sternbeck & Heinrich Kuhn, 2018. "Optimizing case-pack sizes in the bricks-and-mortar retail trade," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 40(4), pages 913-944, October.
    6. Holzapfel, Andreas & Kuhn, Heinrich & Sternbeck, Michael G., 2018. "Product allocation to different types of distribution center in retail logistics networks," European Journal of Operational Research, Elsevier, vol. 264(3), pages 948-966.

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