Warehouse or store? Picking the wrong place to unpack can cost you

warehouse or store

Retailers can see "considerable savings" if they unpack case packs (packages shipped by the supplier) into the individual consumer units at a distribution center before shipping the product to the final store, according to a 2017 paper published in the European Journal of Operations Research that focused on grocery retailers in the Netherlands and Germany. The amount of savings will vary depending on the SKU, and they are even greater if a model is used to determine the "optimal solution" for a given retailer.

The paper examined two different scenarios for a given SKU:

  1. Stores are sent case packs of the SKU and unload them onsite.
  2. Store are sent a custom number of consumer-level packaging units based on their inventory needs.

The researchers developed a model to determine the best unpacking location for a given SKU. This was then tested in a "hypothetical environment" that used data from a European retailer (referred to as Delta in the study), information on its current operations practice and cost data from a second retailer. When the researchers tested their model in the hypothetical environment, they found a 5.3% drop in the overall cost when the retailer moved from its current operating model to what the paper referred to as the "optimal solution."

The optimal solution in this paper was a model in which all stores follow the same unpacking method for a given product (either delivering case packs to the store or unpacking it into consumer units at the distribution center) depending on what is the lowest cost for all stores. Retailers must determine the lowest cost option for each product.

Marginally more cost savings were seen if each store used the unpacking method that reduced its individual cost (as opposed to the cost to the entire retailer) but this can be especially hard to put in place at the distribution center level, Rob Broekmeulen, the paper's author and assistant professor at the Eindhoven University of Technology, told Supply Chain Dive in an interview.

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