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A cost-efficient method to optimize package

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European Journal of Operational Research 241 (2015) 917926

Contents lists available at ScienceDirect

European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Innovative Applications of O.R.

A cost-ecient method to optimize package size in emerging markets

Harol Mauricio Gmez Albn a, Osman Camilo Soto Cardona a, Christopher Meja Argueta a,,
Alfonso Tullio Sarmiento b
a
b

Logyca/Research, Av. El Dorado #92-32 Torre G5, Piso 5, Ed. Connecta, Bogot, Colombia
University of La Sabana, Campus del Puente del Comn, Km. 7, Autopista Norte de Bogot. Cha, Cundinamarca, Colombia

a r t i c l e

i n f o

Article history:
Received 14 December 2013
Accepted 18 September 2014
Available online 2 October 2014
Keywords:
Innovative application in OR
Integer programming
Packing
Supply chain management
Emerging markets

a b s t r a c t
Packaging links the entire supply chain and coordinates all participants in the process to give a exible and
effective response to customer needs in order to maximize satisfaction at optimal cost. This research proposes
an optimization model to dene the minimum total cost combination of outer packs in various distribution
channels with the least opening ratio (the percentage of total orders requiring the opening of an outer pack
to exactly meet the demand). A simple routine to dene a feasible start point is proposed to reduce the
complexity caused by the number of possible combinations. A Fast-Moving Consumer Goods company in an
emerging economy (Colombia) is analyzed to test the proposed methodology. The main ndings are useful
for emerging markets in that they provide signicant savings in the whole supply chain and insights into the
packaging problem.
2014 Elsevier B.V. All rights reserved.

1. Introduction
Packaging is a key activity since it links the different stages, actors
and areas within an organization as well as along the supply chain.
The role of packaging goes beyond the preservation and protection of
goods from damage; it does not only facilitate handling and freight
transportation, but also identies the product, differentiating it from
competitors items and providing useful information to consumers
(Klevas, 2005; Yesodha & Amudha, 2012).
One of the most accurate denitions of the activity of packaging
was given by Saghir (2004, p. 6): Packaging is a coordinated system
that prepares goods in a safe, ecient and effective way for handling,
transportation, distribution, storage, retailing, consumption, as well
as recovery, reuse or disposal combined with maximizing consumer
value, sales and hence the organizations prot.
The packaging design has a strategic importance for the eciency
of the supply chain. In this sense, packaging is involved in logistics
activities such as receiving, storing, picking, transportation, etc. Since
the eciency of these activities is affected by the packaging shape,
size and structure (packaging levels), having inadequate packaging
designs can lead to higher costs in the supply chain (Azzi, Battini,
Persona, & Sgarbossa, 2012; Chan, Chan, & Choy, 2006; Garca & Prado,

2006; Hellstrm, 2007; Hellstrm & Saghir, 2007; Lee & Lye, 2003;
Tpler, Gy, & Csik, 2010).
Organizations that properly manage the packaging across the network realize competitive advantages. In general, a package should
meet the different needs of multiple organizations and distribution
channels, especially in emerging economies where the strategies to
reach target markets are widely diversied. Furthermore, a welldened package enhances the coordination to respond exibly, timely
and effectively to customer needs, maximizing their satisfaction and
service level at optimal cost (Hughes, 1996; Herard & Robson, 1992;
Sanders & Green, 1990).
Packaging structure is a system with hierarchical levels (see
Fig. 1), where a set of consumption items called eaches are put together inside an inner pack. Then several inner packs are placed into
an outer pack, and nally a set of outer packs becomes a palletized
cargo.
In essence, designing an outer pack by dening the right number
of inner packs can generate the following benets to the logistics
activities (Hellstrm, 2007; Hellstrm & Saghir, 2007):

Corresponding autor. Tel.: + 57 1 4254727x413/Mob.: + 57 316 431 2747.

E-mail addresses: hgamez@logyca.org (H. M. Gmez Albn), osoto@logyca.
org (O. C. Soto Cardona), cmejia@logyca.org, vcarter_15@hotmail.com (C.M. Meja Argueta), alfonso.sarmiento@unisabana.edu.co (A. T. Sarmiento).
http://dx.doi.org/10.1016/j.ejor.2014.09.020
0377-2217/ 2014 Elsevier B.V. All rights reserved.

Reduction of handling times

Shorter picking times
The cost of packing materials would be diminished
Decreased inventory carrying cost
The storage layout of warehouses as well as the related utilization of the storage facilities would be improved
The handling of products at delivery points would be facilitated

An extensive literature review provided diverse papers related to

what is understood by researchers as the packaging problem. Some

918

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

Despite the latter research work, there are few studies aimed at
dening the optimal quantity of inner packs to be placed into an outer
pack from a cost minimization perspective in logistics processes. In
fact, Wagner (2002) recognizes the package size as a key aspect in
the supply chain strategy and its effectiveness in reaching customers
with what they need.
Furthermore, those who have addressed this issue have mostly
focused on two echelons of the supply chain: customers and distribution centers (Wang, 2010; Wen, Graves, & Ren, 2012; Wilson, 1965;
Yan et al., 2009), or have been focused on the eciency of an activity such as transport (Ge, 1996). These models include the following
costs:

Fig. 1. Structure of packaging. Source: IBM (2013).

of the papers explain the main purposes of a package, its role within
the organization and along the supply chain (Herard & Robson, 1992;
Hughes, 1996; Sanders & Green, 1990), while others detail the interaction of packaging design across different areas and actors (Azzi
et al., 2012; Lockamy, 1995; Saghir, 2004; Tpler et al., 2010; Yan,
Robb, & Silver, 2009).
Authors from operational research area have treated the packaging problem by formulating optimization models in order to dene
the best way to place a given set of rectangular boxes into a larger
rectangular box with the smallest possible volume. Various solution
methods to this problem have been devised, providing insight into
optimal solutions in the real world (Ceselli & Righini, 2008; Fanslau &
Bortfeldt, 2010; Ge, 1996; Leung, Wong, & Mok, 2008; Swaminathan
& Tayur, 1998; Wong & Guo, 2010).
Some optimization models focus on the bin packing and knapsack
problems. The bin packing problem refers to minimizing the number of bins (which have a given volumetric capacity) used to pack a
set of objects with multiple sizes (Ceselli & Righini, 2008; Fanslau &
Bortfeldt, 2010; Yesodha & Amudha, 2012). The adaptations of the
knapsack problem try to determine the number of units of each item
to be placed inside a container (with a given capacity), maximizing a
utility function or total value of the items included within it.
Swaminathan and Tayur (1998) propose a methodology to minimize the cost of keeping boxes and nished goods stock considering
the stochastic behavior of demand. Two alternatives to deal with
the problem are given: a large scale optimization model and a subgradient method to split the original problem into separable linear
problems in order to solve the original problem with its variables.
The results are analyzed by running different scenarios with variations in demand, storage capacities and costs.
Fanslau and Bortfeldt (2010) present a search tree algorithm to
allocate a set of outer packs with different sizes within a rectangular
container to maximize the total volume usage. The proposed algorithm is divided in two phases: the rst phase permits construction
of blocks where the outer packs and containers are different, and the
second phase solves the problem through a deep search tree called a
controlled split algorithm.
The heuristic designed by Brunetta and Grgoire (2005) focuses
on the packaging problem in three dimensions in order to maximize
the capacity usage of containers with different sizes. The proposed
algorithm explores all the space solutions determining the feasible
packaging patterns and trying to maximize their usage. Finally, Ceselli
and Righini (2008) formulated an optimization model to deal with the
bin packing challenge using branch and price algorithm. The resulting
sub-problem presents a knapsack problem that is solved with a hybrid of the column generation and the branch and bound algorithms,
giving better quality and computational results compared with traditional algorithms.

- Costs of handling and carrying inventory of outer packs at the

production plant (Swaminathan & Tayur, 1998; Tpler et al.,
2010)
- Cost of handling outer packs at distribution centers and retail
stores (Swaminathan & Tayur, 1998; Wang, 2010; Wen et al.,
2012; Wilson, 1965)
- Cost of handling inner packs at distribution centers and retail
stores (Wang, 2010)
- Cost of opening an outer pack or an inner pack at Distribution
Centers and retail stores (Wang, 2010)
- Transportation cost (Ge, 1996)
- Cost of packing material (Ge, 1996; Wilson, 1965)
However, other relevant costs, such as the cost of carrying inventory of inner packs or outer packs at distribution centers, cost of
carrying inventory of packing material at the production plant, cost
of packing up the inner packs into the outer packs, the cost of picking
activity at the distribution center, the cost of changing the transportation costs structure, among others, have yet to be taken into
account.
Emerging markets are clearly different from mature markets.
They are local, fragmented, low scale, and mostly served by ownermanaged small enterprises (Sheth, 2011). Emerging consumers tend
to buy products in smaller sizes, even though the per-unit cost is
higher, because they are constrained by smaller incomes and living spaces (DAndrea, Stenger, & Goebel, 2004). Traditional stores,
like mom-and-pop grocery stores, also require buying products in
small packages due to limited storage space. To satisfy this heterogeneous demand a variety of offerings is required, including many
variations of packaging sizes of the same generic kind of good. Currently, most companies distribute their products in emerging markets using package sizes more focused on the supermarket channel demand. As a consequence, these packages have to be opened
continuously to satisfy the smaller demand quantities of traditional
stores.
According to what has been explained, there are important gaps
in the application of optimization in a holistic way to the problem of
determining an optimal package to serve different distribution channels along the supply chains. An integral optimization model does not
exist either for developed countries or for emerging countries.
In this sense, this article presents an optimization model to dene
the best quantity of inner packs to be included into an outer pack that
minimizes the total cost associated with the activities of the supply
chain in multiple channels, while a set of typical constraints of the
emerging markets is fullled. A set of computational experiments was
developed to test the model and has already been applied to the case
of a Colombian Fast-Moving Consumer Goods (FMCG) company in its
diverse distribution channels.
The article is organized as follows: In Section 2 the problem description is introduced, together with a conceptual framework about
the Mixed Integer Programming. In Section 3, a brief summary of the
methodology is presented, the optimization model is detailed and
an initialization routine to accelerate the search of a feasible start
point is described. Then in Section 4, the results of the computational

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

experiments for the optimization model in different scenarios are analyzed together with a sensitivity analysis. Finally the conclusions and
future work are summarized in Section 5.

2. Problem description and conceptual framework of Mixed

Integer Programming (MIP)
2.1. Problem description
Emerging markets are dened as geographical areas in which the
population has an average or low per capita income, but are on a
development path to a more stable economy: that is why they are
also called developing countries. The main feature of these countries
is that the majority of its population is located at the bottom of
the pyramid, which encompasses all social sectors whose annual
income does not exceed 5000 US dollars annually. In Colombia
this feature represents the 58 percent of the total population (DANE,
2007). Such social characteristics of emerging economies lead to the
coexistence of several distribution channels to reach the nal consumers, some of them are direct and others are indirect through
the use of wholesalers and distributors. In these economies a huge
presence exists of what are called nanostores: that is, small shops
attended directly by their owner (Blanco & Fransoo, 2013). This distribution channel is also called the traditional channel and represents about 61 percent of the market share in all Latin-America
(Nielsen, 2009).
Other distribution channels are also present: the modern channel,
meaning supermarkets and retailers; the wholesale channel, representing one of the indirect ways to reach the retail shops and customers; and the institutional channel, including schools, food service,
hospitals and other large institutions.
The opening ratio is the proportion of orders requiring the opening
of an outer pack in order to precisely meet demand. A high opening
ratio of outer packs is a very usual situation at emerging markets,
especially in the traditional channel, due to the demand pattern characteristics of nanostores. Most of the time they order inner packs
instead of outer packs because their demand is low in quantity but
high in frequency (Blanco & Fransoo, 2013). A high opening ratio leads

919

to extra costs, due to the opening of the outer packs, the picking of
the inner packs and other costs involved in the process of opening an
outer pack, as described in the previous section.
In order to prove the usefulness of the proposed methodology, one
SKU (a star good) of a Fast-Moving Consumer Goods (FMGC) company in Colombia (selling its products in all the distribution channels
described above) was analyzed to determine the best quantity of inner packs to be included inside an outer pack in order to minimize
the total cost caused by the high opening ratio of outer packs. The
time horizon for the analysis was dened as 53 weeks, because in
this time it is possible to consider the seasonal behavior of demand.
The demand types are listed according to the quantity of inner packs
ordered by the customers of each distribution channel. The historical data from the demand of the chosen SKU disclosed 95 types of
demand, corresponding to the 95 ordered quantities between 1 and
5400 inner packs.
The company under study has the logistics network shown in
Fig. 2, where the scope of the case study covered the three largest
business units, three distribution centers (one of the largest, one of the
medium-sized, and one of the smallest ones), and all the distribution
channels (traditional, modern, wholesaler and institutional channels).
The number of SKUs per business unit and the demand per month in
each distribution channel is given as additional information in the
gure as an indicator of the size of the analyzed operation.
For the chosen SKU, the company actually uses an outer pack with
capacity of 15 inner packs, but the management wants to evaluate just
one new combination of outer packs that better ts the channel, or a
set of shared outer packs to serve the demand of all the distribution
channels at the minimum logistics costs.
The number of ve options of outer pack sizes to be tested was
dened by the managers, since a higher number of outer packs will
cause an unmanageable logistics complexity, and as it will be detailed
in the results section, it corresponds to the point at which the total
costs reached an asymptotic behavior with the least costs.
There are several commercial software packages, such as Pallet
Stacking or Cape Pack, which could optimize the pallet pattern or
dene the optimal dimensions of the package according to the physical characteristics of the product. Nevertheless, there is no software
that could dene the optimal quantity of inner packs to be included

Fig. 2. Logistics network of the Colombian FMCG under study. Source: Own elaboration.

920

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

in an outer pack, and that is precisely the objective of the proposed

methodology. Dening the number of eaches to be packed into an
inner pack is out of the scope of this work, but it is part of the future
work to be developed.

2.2. Integer programming

An integer programming problem is a linear programming problem with additional constraints and variables that must take integer
and binary values. The classical formulation appears as follows:

max ct x
Ax b
x0
xi R i R
xi Z i I
xi {0|1} i B
where x, c Rn , A Mmn , b Rm and R, I, B {1, 2, . . . , n} are disjoint sets, such that R I B = {1, 2, . . . , n}. If R = and I B = , the
problem is a Mixed Integer Programming (MIP), if only R = the problem is an integer Programming and if R = I = , the problem is integer
and binary programming.
The most known methodologies used to solve these problems are:
branch and bound, polyhedral theory, valid inequalities theory, Gomory cuts, and so on. The proposed model in this research work is
related to the MIP with R = .
3. Methodology and optimization model
3.1. General methodology
The designed methodology for this research work consists of the
following activities:
a. Process mapping: This activity is oriented to know the physical ow of packages along a traditional supply chain (in the
applied research, the processes from the FMCG company were
considered) from the supplier, through the process of packing
plant, handling at the distribution centers, transportation and
the delivery to the distribution channels. This process was carried out to understand the processes in which the size of the
package could produce important impacts.
b. Design the optimization model: An integer programming optimization model was built in order to determine the type of
outer packs with the least opening ratio and the best selection
of outer packs that minimizes the total cost of those processes
affected by the package size meeting customer demand for a
selected Stock Keeping Unit (SKU) (see further details of this
optimization model in the next section).
c. Data generation and data gathering: After designing the optimization model, there were two options: creating data for
computational experiments or collecting data from a real problem. Both options were developed, as follows: in the rst phase
a set of parameters were created to validate the model, while
during the second phase the data gathered from the FMCG was
used to verify the applicability of the model into reality.
d. Results analysis (see Section titled results analysis and ndings 4).
Although this paper is focused in the optimization model created
to solve the problem, only the results related with the FMGC Company
are shown to give an insight to the reader about this research work
and one example of the application of the methodology.

3.2. Formulation to dene the optimum type of outer packs for each
SKU to minimize the total logistics cost
This formulation determines the set of outer packs that meets
demand with the minimum total logistics cost considering the alternatives of outer packs that minimize the opening ratio. The model
looks as follows:
Sets
iI
kK
bB
cC
tT

Types of outer packs

Types of distribution channels
Types of demand
Distribution centers
Periods of time (in weeks)

Parameters
t
DCkbc
Demand in terms of outer packs in channel k, distribution
center c, time period t for the demand type b
Demand in terms of inner packs in channel k, distribution
DBtkbc
center c, time period t for the demand type b
CBCb
Quantity of inner packs in a demand type b when the demand is given in outer packs
Quantity of inner packs in a demand type b when the deCBBb
mand is given in inner packs
Number of inner packs contained in an outer pack type i
NBOi
NCP
Number of allowed types of outer packs to meet the demand
of the distribution channels being modeled
Cost of outer pack type i (packaging material)
CCi
Cost of holding one unit of outer pack type i in inventory at
CACi
the warehouse of the manufacturing plant during a unit of
time (week)
Cost of packing up the inner packs inside of the outer pack
CEi
type i
CET
Cost of the material to label outer packs
CREP
Cost of the activity of labeling outer packs
CAPPi
Cost of holding one unit of outer pack type i in inventory at
the warehouse of the manufacturing plant during a unit of
time (week)
Cost of picking one outer pack type i at the warehouse of
CACPi
the manufacturing plant
Transportation cost of an outer pack type i from the manuCTPci
facturing plant to the distribution center c
CRCCc
Receiving cost of an outer pack at the distribution center
(called DC) c
CAPCci Cost of holding one unit of outer pack type i in inventory at
the distribution center c during a unit of time (week)
CAUc
Cost of holding one inner pack in inventory at the distribution center c during a unit of time (week)
Cost of opening an outer pack i at the distribution center c
CABci
CMCci
Cost of handling an outer pack i at the distribution center c
Cost of picking an inner pack at the distribution center c
CALc
CMBc
Cost of handling an inner pack at the distribution center c
CCUEc Cost of verifying the shipment of outer packs at the distribution center c
CCUVc Cost of verifying the shipment of inner packs at the distribution center c
Transportation cost of an outer pack i from distribution cenCTCkci
ter c to the channel k
CTBkc
Transportation cost of an inner pack from distribution center c to the channel k
Cost to return outer packs from channel k to the distribution
CDVkc
center c
M
Big number
The most representative costs are shown in Table 1. The table
includes the range of values in which each cost was evaluated. The
lowest limit is the cost per outer pack composed of 4 inner packs (this

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

921

Table 1
Parameter settings.
Cost description

Range of values (US dollars per pack)

Cost of one outer pack (packaging material)

Cost of packing the inner packs into one outer pack
Cost of carrying inventory of one outer pack at the warehouse of the production plant
Transportation cost of one outer packs from the production plant to the distribution centers
Cost of carrying inventory of one outer pack at the distribution centers
Cost of opening one outer pack at the distribution centers
Cost of picking one inner pack at the distribution centers
Transportation cost of one outer pack from distribution centers to the distribution channels

[306; 982]
[60; 166]
[306; 2298]
[225; 2166]
[428; 3929]
[392; 1389]
[50; 124]
[565; 5782]

Source: Own elaboration.

is the minimum feasible size from a technical approach), while the

upper limit is the cost per outer pack composed of 30 inner packs
(this is double the actual size of the outer pack of the chosen SKU)
Variables
t
Quantity of outer packs type i sent to distribution center c,
Xkbci
from channel k in the time period t to meet the demand
type b
t
Qkbci
Quantity of inner packs type i sent to distribution center c,
from channel k in the time period t to meet the demand
type b
t
Quantity of additional inner packs needed to meet the order
Wkbc
in the type of demand b within channel k, distribution center
c and during time period t
Quantity of inner packs in stock in the distribution center c
Rtc
during time period t
t
Quantity of outer packs type i opened in distribution center
Uci
c in the time period t

ik

t
Ykbc

1 if an outer pack i for distribution channel

k is chosen to serve the demand

=

0 otherwise

1 if an outer pack i is chosen to send product to channel

k for the demand type b in time period t

=

0 otherwise

Model
The constraints (1) and (2) meet the demand in terms of outer
packs and inner packs (if needed), while the constraints (3) and (4)
link the inventory of inner packs in different periods keeping the
balance. The constraints (5), (6) and (7) are used to activate the binary
variables to use a type of outer pack, as well as to send inner packs
when needed. The constraint (8) determines the amount of outer
packs to be used. Finally, the constraints from (9) to (14) are related
to the type of variables.

t
NBOi Xkbci
CBCb

k K, b B, c C, t T
k K, b B, c C, t T

NBOi Ucit + Rt1

=
c

iI



(2)

Ucit Z
Rtc Z

iI



c C, i I, t T

c C, t T, t > 1

1
DB1kbc Wkbc
+ R1c

cC tT

c C

Ucit


kK

(12)

k K, b B, c C, t T

(13)

ik {0, 1} i I, k K

(14)

Objective function
This focuses on minimizing the total logistics cost along the supply
chain related to the chosen outer packs.

Min z =



t
t
t
Xkbci
DCkbc
+ Qkbci
DBtkbc
iI kK bB cC tT


 

CCi + CACi + CEi + CAPPi + CET + CREP + CACP


t
t
t

Xkbci
DCkbc
+ Qkbci
DBtkbc
iI kK bB cC tT



t
t
t
Xkbci
+
DCkbc
+ Qkbci
DBtkbc
iI kK bB cC tT


 
CTPci + CAPCci + CMCci +
iI kK bB cC tT


 t
t
t
Xkbci
DCkbc
+ Qkbci
DBtkbc (CRCCc + CCUEc )

 t

t
t
+
CDVkc Xkbci
DCkbc
+ Qkbci
DBtkbc
iI kK bB cC tT


iI kK bB cC tT



CAUc Rtc +

cC tT



 t

t
t
CTCkci Xkbci
DCkbc
+ Qkbci
DBtkbc



t
CALc Ykcb
DBtkbc

kK bB cC tT



t
Wkcb
DBtkbc CMBc + CCUVc

i I

t
Wkcb
DBtkbc CTBkc





Ucit CCi + CACi + CEi + CAPPi

cC iI tT


 t
Uci
+ CET + CREP + CACP + CRCC

(5)

(6)

kK

ik i I



(4)

kK bB

kK bB cC tT

(11)

c C, t T

t
Ykbc
{0, 1}

(9)
(10)

kK bB cC tT




t
t
Xkbci
M
+ Qkbci
ik


k K, b B, c C, i I, t T

k K, b B, c C, t T

t
Wkbc
Z

kK bB

NBOi Uci1 =

(8)

kK bB cC tT

t
DBtkbc Wkbc
+ Rtc

(3)

t
t
Xkbci
, Qkbci
Z

iI

(7)

iI kK

(1)

iI



t
t
NBOi Qkbci
+ Wkbc
= CBBb

t
t
Wkbc
MYkbc
k K, b B, c C, t T

ik NCP



cC iI tT



Ucit CTPci + CAPCci + CABci

cC iI tT


kK cC iI tT

Ucit CDVkc .

922

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

Fig. 3. Frequency of selection of different outer packs. Source: Own elaboration.

Cost components of the objective function (total cost) are given

below:
Total cost = cost of packaging material + cost of carrying inventory of packaging materials at the manufacturing plant warehouse + cost to pack the inner packs into the outer pack + cost
of carrying inventory of outer pack at the warehouse of the
production plant + cost of material to label outer packs + cost
of the activity of labeling outer packs + cost of picking outer
packs at the warehouse of the production plant + cost of picking inner packs at the distribution centers or DC + receiving cost
of outer packs at plants + cost to prepare outer packs at the
distribution centers + transportation cost of outer packs from
the production plant to the distribution centers + cost of carrying inventory of outer packs at the distribution centers + cost
to handle outer packs at the distribution centers + receiving
cost of outer packs at distribution centers + cost to verify the
shipment of outer packs and inner packs at the distribution centers + cost to return outer packs from channels to the distribution
centers + transportation cost of outer packs from distribution
centers to the distribution channels + cost of carrying inventory
of inner packs at the distribution centers + cost to verify the shipment of inner packs at the distribution centers + cost to open
outer packs at the distribution centers
3.4. Routine to obtain a feasible initial solution
This routine is used to nd a feasible initial solution in a quicker
way to solve combinatorial problems. This process eases the search
process in the branch and bound algorithm to nd a solution, just
xing in a random way a type of outer packs in the original model.
The routine can be described as:
I. Solve the original model by randomly xing the variable to
choose the outer packs, according to the number of types of
allowed outer packs to serve the demand:

z = max{cx : x P1 } { = 1}
where P1 is a polyhedron generated by a set of linear constraints and is a set of variables that xed the selection of
outer packs.
II. Use the solution of this model (step I) as an initial solution to
solve the original model:

z = max{cx : x P1 }
III. If the problem nds a low optimality gap1 in the nal solution
in a better time, stop the instance. Otherwise, change the outer
pack chosen randomly and solve again. Repeat the process until
all the possible combinations are evaluated by the routine.
1

Magnitude of the difference between the best known solution and the best bound.

4. Results analysis and ndings

4.1. General results analysis
The model proposed in Section 3 minimizes total logistics costs by
nding the best combination of outer packs. In order to know how
many outer packs might be considered as candidates, it is important
to analyze the frequency of their selection. To reach that goal, the
proposed model is run 27 times (one per option of outer pack analyzed) considering all the alternatives of outer packs with capacities
from 4 to 30 inner packs, since the outer packs manufacturer cannot
congure sizes with a capacity lower than 3 inner packs. The results
are shown in Fig. 3.
In Fig. 3, the outer pack with the highest frequency of selection
corresponds to the outer pack of the highest capacity with 30 inner
packs capacity. The following alternatives are the outer packs with
capacities of 10 and 15 inner packs being used 25 times from the 27
runs, respectively. As can be seen, the frequency of selection continues decreasing, to reach the outer packs with 17 and 23 inner pack
capacities having the lowest frequency of selection chosen by the
model.
On the other hand, Fig. 4 shows the total cost performed when
combinations of different outer packs take place. It is easy to see that
the point at which the graph reaches an asymptotic behavior is when
there is a combination between 5 or 7 outer packs. Thus it can be
concluded that combinations with higher than 5 types of outer packs
cannot represent signicant savings for the SKU under analysis.
The computational complexity is an important issue to be analyzed, comparing the runs with and without the initialization routine
in terms of gap and computational time. To perform this analysis, 27
instances (one per kind of outer pack) were run. The stopping criteria
were 3600 seconds per run or reaching a gap of less than 0.1 percent. A
total of 27 experiments were developed and the computational time,
gap and total cost are shown in Table 2.
In general the model with the initialization routine gets better
performance 89 percent of the time. Just two instances from the model
without routine perform better in time, while the gap performs better
without the routine three times. Instances between 2 and 9, as well
as 12 and 13 outer packs, did not obtain an integer solution during
the maximum time solving the model without initialization routine.
Considering the results of the combinations, a total of six scenarios
was proposed to change the quantity of outer packs introduced in the
solution:

Scenario 1: Dening the best outer pack (without the possibility of sharing among others) for each distribution channel
considering the demand pattern per channel.
Scenario 2: Determining one shared outer pack to be used by all
the distribution channels considering the aggregated demand
pattern.

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

923

Fig. 4. Total costs for different outer pack combinations. Source: Own elaboration.
Table 2
Total cost, computational time and gap with and without initialization routine.
Combinations of outer packs

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Model without initialization routine

Model with initialization routine

Time (seconds)

Gap (percent)

Total cost (US dollars)

Time (seconds)

Gap (percent)

Total cost (US dollars)

1853
3600
3600
3600
3600
3600
3600
3600
3600
100
3600
3600
3600
3600
3600
3600
3600
1993
3600
3600
731
708
315
352
427
321
120

0.06

0.03
0.27

0.56
0.54
0.14
0.48
0.08
0.28
0.23
0.05
0.06
0.04
0.04
0.04
0.06
0.01

366.9k

355k
356k

357k
357k
356k
357k
355k
356k
356k
355.3k
355.3k
355.2k
355.2k
355.2k
355.3k
355.1k

500
782
780
1253
459
3600
1194
1470
534
214
3600
3430
117
43
56
105
50
53
46
49
60
37
37
49
38
49
132

0.01
0.04
0.07
0.10
0.09
2.20
0.09
0.07
0.09
0.08
0.10
0.09
0.02
0.04
0.05
0.01
0.04
0.04
0.03
0.03
0.03
0.01
0.03
0.02
0.02
0.02
0.01

366.7k
360k
358k
357k
356k
364k
355.9k
355.6k
355.4k
355.3k
355.4k
355.4k
355.1k
355.2k
355.2k
355.1k
355.2k
355.2k
355.2k
355.1k
355.2k
355.1k
355.1k
355.1k
355.1k
355.1k
355.1k

Note: k after a number value will multiply the value by 1000.

Source: Own elaboration.

Scenario 36: These scenarios share two (scenario 3), three

(scenario 4), four (scenario 5) and ve outer packs (scenario 6)
to serve the demand of all the distribution channels.

The proposed scenarios are important because they carry out an

in-depth analysis of the capacity and the robustness of the model.
The computational experiments were run in a computer with an Intel
core i5 processor and RAM memory of 6 gigabytes with the use of
software GAMS v24.1 and the solver CPLEX v12.5.
Table 3 shows a summary of the main cost components and their
variations for each described scenario. The rst column shows the
costs of the current operation, followed by the percentage of cost
variation in 1 outer pack per channel scenario, as well as the results
for each scenario with 1 to 5 shared options of outer packs to serve
all the distribution channels.
The main ndings show that the cost of carrying inventory of nished goods, the cost of picking inner packs and the transportation
cost have the highest impact on the logistics operations, since they
add up to 84 percent of the total cost. As a consequence, in all the
scenarios a decrement in the logistics costs was observed. For example, in the case of costs from returns of outer packs, the savings

compared to the actual operation reached an average of 48 percent. In

general, the total cost decreased by an average of 8 percent for all the
scenarios.
The choice of the outer packs with the highest capacity of 30 inner
packs in all the shared scenarios shown in Table 3 and in two channels
(institutional and wholesaler) of the one option per channel scenario
proves the importance of the selection of the outer pack with the
highest frequency. The following alternatives were the options of 15
and 4 inner packs, respectively.
In the aspects related with the eciency of the exact model, an
average gap was observed of 0.10 percent, with a gap of 0.25 percent
observed in the worst case for the scenario of 1 option per channel
and the best value using the ve options available, giving a gap of
0.07 percent. It is clearly seen that the quantity of combinations of
outer packs related to the scenario determines the gap, because in
the case of 1 option per channel the best option for each distribution
channel is requested, carrying the need to feed the demand pattern
for each channel separately. In the case of the shared outer packs for
all the distribution channels, the gap is more exible if the model has
the opportunity to share more outer packs among the distribution
channels.

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H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

Table 3
Detail of costs and types of outer packs in the optimization results.
Actual

Percentage of cost variation per scenario

(US dollars) 1 option per

1 shared
2 shared
3 shared
4 shared
5 shared
channel (percent) option (percent) options (percent) options (percent) options (percent) options (percent)
Total cost
395k
Cost of packaging material
36k
Cost of carrying inventory of materials at
4k
plant
Cost to pack the inner packs into the outer
7k
pack
Cost of material to label outer packs
2k
Cost of the activity of labeling outer packs
1k
Cost of carrying inventory of outer pack at
69k
plant
Cost of picking outer packs at the plant
2k
Transportation cost of outer packs from
44k
plant to DC
Receiving cost of outer packs at DC
2k
Cost of carrying inventory of outer packs at 107k
the DC
Cost of carrying inventory of inner packs at 295
the DC
Cost to open outer packs at the DC
11k
Cost to handle outer packs at the DC
2k
Cost of picking inner packs at the DC
21k
Cost to verify the shipment of outer packs
802
at the DC
Cost to verify the shipment of inner packs
2k
at the DC
Transportation cost of outer packs from DC 84k
to the distribution channels
Cost to return outer packs from channels
361
to the DC
15

6
12
13

5
12
12

10
17
17

10
16
17

10
16
16

10
16
16

19

19

23

22

22

22

43
43
5

46
46
8

46
46
0

44
44
0

44
44
0

44
44
0

43
5

46
8

46
0

44
0

44
0

44
0

43
6

46
8

46
0

44
0

44
0

44
0

29

86

86

89

93

93

25
30
0
42

24
32
1
46

25
34
0
45

27
32
3
42

28
31
4
41

29
31
5
41

26

27

27

27

27

27

48

48

47

48

48

48

30

30 and 15

30, 15 and 4

30, 15, 4 and 10

30, 15, 4, 10 and 14

0.00

0.01

0.03

0.03

0.01

00:12

02:21

03:39

02:29

00:33

Modern
Traditional
Institutional
Wholesaler
Gap

0.10

15
5
30
30
0.25

Time {minutes:secconds}

00:22

03:42

Note: k after a number value will multiply the value by 1000.

Source: Own elaboration.

As mentioned above, the acquired results are of good quality, since

the gap was very low. However, in order to prove the robustness of
the model, a sensitivity analysis was developed.
The computational times are consistent with the results from the
gap, so the higher the computational time, the higher the possible
combinations of the model. The average computational time spent by
the model to reach a dened gap was 2 minutes and 20 seconds, with
the minimum gap observed in the current scenario in 22 seconds and
the worst time in the three shared options in the distribution channels
with 4 minutes and 49 seconds.
Table 4 represents the total number of opened outer packs according to each type of outer pack chosen in each scenario. In general,
compared to the current situation, all the scenarios tested produced

savings of about 50 percent in the opening ratio, and the outer pack
with a capacity of 14 inner packs is not opened in any scenario.

4.2. Sensitivity analysis

The procedure consisted of varying some parameters in order to
identify useful trends in the outer packs selection, solutions, objective
function variation, gap and computational time changes. Relevant
parameters such as inventory and transportation costs, as well as the
cost to open outer packs, are considered in order to validate the impact
on the outer packs conguration for different distribution channels.

Table 5
Main costs share in the total cost function in the solution for SKU.
Table 4
Opening ratio of outer packs.
Scenarios

Opened outer packs per type (number of units opened)

4

Current situation
1 shared option
2 shared options
3 shared options
4 shared options
5 shared options

10

14

15

30

Total

11,713
10,644
10,850
10,582
10,823

23,133
11,713
11,671
11,418
11,403
11,264

23,133

147
31
32

Source: Own elaboration.

46
33

1027
421
744
376

Main cost components

Share respect to the

total cost (percent)

Cost of one outer pack (packaging material)

Cost of packing the inner packs into one outer pack
Cost of carrying inventory of one outer pack at the plant
Transportation cost of one outer pack from the plant to
the DC
Cost of carrying inventory of one outer pack at the DC
Cost of opening one outer pack at the DC
Cost of picking one inner pack at the DC
Transportation cost of one outer pack from DC to the
distribution channels

8.72
1.60
16.68
14.58

Source: Own elaboration.

25.93
2.62
5.88
20.16

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

925

Table 6
Solution and total cost from the proposed model with original data.

Total cost
Type of outer pack

1 shared option

2 shared options

3 shared options

4 shared options

5 shared options

US dollars 377k
30

US dollars 357k
15 and 30

US dollars 356.4k
4, 15 and 30

US dollars 356.2k
4, 10, 15 and 30

US dollars 356k
4, 10, 14, 15 and 30

Note: k after a number value will multiply the value by 1000.

Source: Own elaboration.
Table 7
Solution and total cost from the proposed model with modied cost of carrying inventory of one outer pack at the distribution
centers.

Total cost
Type of outer pack

1 shared option

2 shared options

3 shared options

4 shared options

5 shared options

US dollars 286k
30

US dollars 273k
5 and 30

US dollars 272k
5, 8 and 30

US dollars 265k
5, 8, 15 and 30

US dollars 264k
5, 8, 15, 20 and 30

Note: k after a number value will multiply the value by 1000.

Source: Own elaboration.

Those costs are introduced with their share in the total cost function
in Table 5.
Table 6 shows the results from the total cost and the types of
outer packs to meet the demand under the original conditions. The
total cost is different in this table, owing to Table 2 having a different
seed in the initialization routine.
Table 7 shows the solutions when the cost of carrying inventory
of one outer pack at the distribution centers is reduced by 90 percent,
in order to reach the share of the lowest costs considered by the
proposed model. The variation in the carrying inventory cost produces
a decrease of roughly 23 percent in the total cost. The conguration
of outer packs also presents signicant changes because:
- The second outer pack option changes from the option with
capacity of 15 inner packs to the one with 5 inner packs.
- The third option changes from the outer pack with capacity of
4 inner packs to the one with 8 inner packs.
- The fourth option changes from the outer pack with capacity
of 10 inner packs to the one with 15 inner packs.
- The fth option changes from the outer pack with capacity of
14 inner packs to the one with 20 inner packs.
In general three options changed with the variation in the described cost component. The most important aspect is that the chosen options in the modied model try to compensate for the lower
capacity in the rst chosen outer pack with the following alternatives.
Table 8 shows the solutions when the transportation cost of one
outer pack from distribution centers to the distribution channels is reduced by 90 percent, in order to reach the share of the lowest costs
considered by the proposed model. The variation on the secondary

transportation cost produces a decrease of roughly 9 percent in the

total cost. The conguration of outer packs presents the same outer
pack options as in the case of variation in the carrying inventory cost
of the outer packs. Thus, in conclusion, reducing costs with the highest
share generates a signicant change in the outer packs conguration.
Finally, Table 9 shows the solutions when the cost of opening one
outer pack at the distribution centers is increased by 500 percent, in order to reach the share of the highest costs considered by the proposed
model. The variation on the cost to open outer packs produces an increase of roughly 8 percent in the total cost, reecting the importance
of that cost in the model.
The conguration of outer packs presents the same outer pack
options as in the two previous cases. The unique difference comes
from the swap of the fourth and fth alternatives, reecting that this
modication prefers to keep lower capacity outer packs.
The main ndings of all scenarios are shown below:
- The best alternative (the minimum cost) is reached in all the
experiments when the highest combination of shared outer
packs to serve the distribution channels is proposed.
- If more than one option is used to deliver goods in the multiple
channels, the total logistics cost does not show a high saving
(only 1 percent is obtained).
- When a combinatorial problem is faced with the model, the
time tends to increment as well as the gap, because of the
quantity of possible combinations. However, the gap is not
signicantly incremented.
- The proposed routine provides better results compared to the
original model because of better computational times and
quality in the acquired solutions. It is possible to conclude that

Table 8
Solution and total cost from the proposed model with modied transportation cost of one outer pack from distribution centers
to the distribution channels.

Total cost
Type of outer pack

1 shared option

2 shared options

3 shared options

4 shared options

5 shared options

US dollars 345k
30

US dollars 318k
5 and 30

US dollars 321k
5, 8 and 30

US dollars 316.7k
5, 8, 15 and 30

US dollars 316.6k
4, 5, 8, 15 and 30

Note: k after a number value will multiply the value by 1000.

Source: Own elaboration.
Table 9
Solution and total cost from the proposed model with modied cost of opening one outer pack at the distribution centers

Total cost
Type of outer pack

1 shared option

2 shared options

3 shared options

4 shared options

5 shared options

US dollars 412k
30

US dollars 386k
5 and 30

US dollars 385k
5, 8 and 30

US dollars 384k
4, 5, 8 and 30

US dollars 378k
4, 5, 8, 15 and 30

Note: k after a number value will multiply the value by 1000.

Source: Own elaboration.

926

H. M. Gmez Albn et al. / European Journal of Operational Research 241 (2015) 917926

with a more constrained model, the number of alternatives is

lower and the procedure can obtain a feasible solution more
quickly than obtaining all the possible combinations through
a traditional branch and bound algorithm.
5. Conclusions and future work
Dening the correct quantity of inner packs to be included in an
outer pack has an important impact on the eciency and performance
of almost all logistics activities of a supply chain. In summary, packaging size impacts the logistics operation, specically in the warehousing, transportation, order processing, handling, etc., and it may
also impact commercial operation by inuencing customer demand
and order frequency.
This paper proposed a comprehensive methodology for the denition of the ideal number of inner packs to be contained in an outer
pack, in order to meet customer demand while minimizing the total
logistics costs associated with the acquisition of the packing material
of the delivery of nished products to end customers. The methodology also responds to the typical characteristics of an emerging market,
where companies must serve multiple distribution channels, including traditional trade which plays a key role in terms of sales amounts,
since it requires delivering products to a huge number of points (small
customers, such as nanostores) whose demand is very small (usually
in terms of inner packs) but who placed orders with a higher frequency.
The methodology yields favorable results when comparing the total cost of the supply chain using the ideal outer pack size dened by
the proposed optimization model against current total cost of the supply chain. The savings realized with the Fast-Moving Consumer Goods
company implementation are roughly 8 percent on average, giving
better results in some aspects like transportation, storage, opening
ratio, etc. The use of an uncomplicated routine of xing variables enables the solution of 10 instances just using the traditional branch
and bound with predened stopping criteria, giving a gap of less than
1 percent and with computational times less than 3 minutes.
Future work includes the design of a stochastic model using a
random demand to determine the optimal quantity of consumption
units (eaches) to be packed into an inner pack, based on the decisionmaking process of consumers and other inputs relating to marketing
variables.
Moreover, since the proposed methodology is aimed at dening
the outer pack size (in terms of the contained inner packs) that minimizes the costs of the supply chain of a manufacturer, another topic
for future work would be include the costs of the logistics activities at the retailer level that could be affected by the outer pack size
(i.e. receipt, storage, etc.), so that the analysis would dene the best
option considering two tiers of the supply chain (manufacturer and
retailer).
Acknowledgments
The authors are grateful to the referees for their valuable and
useful comments.

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