Improving the definition of Ship-Pack quantities for a large food retailer

Challenge

Ship-pack optimization in a two-echelon distribution system

Approach

Descriptive and Prescriptive Optimization Analytics

Results

Reduction of over 30% in spoilage

Opportunity

Considerable efforts are spent on optimizing inventory levels in a multi-echelon distribution system. However, one important factor is often ignored: the choice of pack size. The definition of Ship-Packs – transportation unit from supplier to distribution center and then to stores – for all stock keeping units of retailers is an underestimated process that may have a large impact throughout the supply chain.

Retailer A used to establish these quantities in ad-hoc process and felt that it may have a larger impact than it was explicitly considered in indicators, such as days of stock, spoilage and logistics costs.

In the initial brainstorming sessions it was clear that the Ship-Pack quantity has an impact in almost all activities from the products reception at the warehouse to the filling of products in the stores’ shelves.

Results

Through an optimization approach, LTPlabs was able to improve the Ship-Pack quantities of thousands of products. The results point out an impressive return on investment.

The robustness and modularity of the developed methodology enabled the deployment of an optimization continuous service to periodically revise the Ship-Pack quantities and account for critical phenomena, such as seasonality.

The analytical approach to such process had also the effect of instructing the partners about the main drivers that really influence the Ship-Pack definitions, from the logistics costs (at warehouse and store levels), to the holding costs and spoilage costs. The findings were very often against the empirical reasoning.

Results achieved in 3 months