Joint case pack size and unpacking location optimization in a retail supply chain including product returns

Abstract

This paper investigates a case pack size (CPs) selection and unpacking location (store versus distribution center (DC)) problem considering simultaneous product returns and DC picking capacity constraints (CSULP-PRPC). Product returns and DC picking capacity are neglected in existing package literature. This paper presents an joint optimization model of CPs and unpacking location to identify the trade-offs among the relevant costs, such as DC picking, store handling, store inventory, store shortage and product returns. We minimize the total costs under the constraint of the picking capacity at the DC. To solve the model, an efficient two-stage hybrid algorithm is designed. The proposed methodology is illustrated on an application from a leading retailer in southwest China. Numerical analysis indicates that the total costs significantly reduce 17.28% (compared to the current solution). The stock-keeping units (SKUs) with low values and large CPs contribute 38% of the cost savings. Products with low demand and low value change to larger CPs and unpacked at DC, and products with high demand and low value change to smaller CPs and unpacked at DC. This paper also conducts sensitivity analysis on the various parameters and presents some managerial implications.