Quantifying the Benefits of Breaking Bulk in Retail

Quantifying the Benefits of Breaking Bulk in Retail
Author(s): Metters, Richard and Vargas, Vicente
Year: 2001
Paper Number: GBS-DIA-2001-003
Goizueta Department: Decision and Information Analysis

Abstract

We explore the benefits of ‘breaking bulk’ in retail operations. Here, breaking bulk refers to delivering single units from distribution centers to retail outlets rather than the multiple units bundled together by manufacturers termed ‘case–packs’. The focus is largely on the benefits to space management at the retail level, rather than the more obvious reduction in inventory costs. Using data from the grocery industry, results indicate that retail unit profitability can be increased substantially by breaking bulk - but only if current inventory replenishment practices are changed. In essence, breaking bulk allows for either higher product variety within a store or identical variety in smaller stores. This work seeks to quantify the order of magnitude of that benefit.