Decision support for selecting the optimal product unpacking location in a retail supply chain

•We model effects of unpacking supplier case packs in a modern retail supply chain.•The considered inventory policy depends on the unpacking location.•We developed expressions to quantify the effects, including backroom operations.•A numerical example shows significant cost reductions.

The purpose of this research is to investigate the optimal product unpacking location in a bricks-and-mortar grocery retail supply chain. Retail companies increasingly are investing in unpacking operations at their distribution centres (DC). Given the opportunity to unpack at the DC requires a decision as to which products should be selected for unpacking at the DC and which should be shipped to stores in a case pack (CP) or outer pack provided by the supplier. The combined unpacking and unit size decision is evaluated by focusing on the relevant costs at the DC and in-store, i.e., picking in the DC, unpacking either in the DC or in the store, shelf stacking in the store and refilling from the backroom. For replenishing stores, an (R, s, nQ) inventory policy is considered when using the supplier CP and a (R, s, S) policy when the product is unpacked at the DC. Expressions are developed to quantify the relevant volumes and to calculate the corresponding costs on which the unpacking decision is based. A numerical example with empirical data from a European modern retailer demonstrates that unpacking a subset of the stock keeping units (SKUs) at the DC results in a significant cost reduction potential of 8% compared to no unpacking at the DC. The example shows that DC unpacking can generally be highly favorable for a large share of products.