Ship-pack optimization in a two-echelon distribution system

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

European Journal of Operational Research, 2012, vol. 220, issue 3, 777-785

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.

Keywords: Ship-pack; Distribution system; Retail; Replenishment; Inventory optimization (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:220:y:2012:i:3:p:777-785

DOI: 10.1016/j.ejor.2012.02.003

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