Inventory Fulfillment Strategies for an Omni-Channel Retailer

33 Pages Posted: 17 Sep 2015 Last revised: 26 Sep 2015

See all articles by Elnaz Jalilipour Alishah

Elnaz Jalilipour Alishah

University of Washington- Department of Information Systems and Operations Management

Kamran Moinzadeh

University of Washington, Seattle

Yong-Pin Zhou

University of Washington - Department of Information Systems and Operations Management

Date Written: September 2, 2015

Abstract

In this paper, we study the fulfillment strategies of an omni-channel retailer that would like to leverage its established offline retail channel infrastructure to help its online sales. We consider a single newsvendor-type product that is sold in both online and offline channels to non-overlapping markets with independent Poisson demand. The offline store can fulfill online demand at an additional handling and fulfillment cost, k, but not vice versa. The retailer makes decisions at three different levels: 1) at the strategic level the retailer must establish a fulfillment structure between the two channels in terms of where to stock inventory in the two channels, 2) at the tactical level, the retailer decides how much inventory to have for each channel before the season starts, 3) at the operational level throughout the season, as demand unfolds and inventory depletes, the retailer makes rationing decision about whether to use offline inventory to fill online order at any moment. We build separate and integrated models to study these decisions, and find that the optimal rationing decision has a threshold-based structure that depends critically on k and the mix of demand between the two channels. Two simple rationing heuristics are proposed and shown to be effective. Furthermore, integrating the rationing policy into higher-level decisions, we show that it can have significant impact on the retailer’s stocking and fulfillment structure decisions. As a result, we propose an integrated policy, where the retailer builds separate inventory stocks for each channel but can use the offline inventory to back up online sales, subject to a rationing heuristic, is proved to be simple, effective, and robust. We discuss the various practical implications of our findings.

Keywords: Inventory Rationing, Online Order Fulfillment, Heuristics, Inventory Stocking Policy

Suggested Citation

Jalilipour Alishah, Elnaz and Moinzadeh, Kamran and Zhou, Yong-Pin, Inventory Fulfillment Strategies for an Omni-Channel Retailer (September 2, 2015). Available at SSRN: https://ssrn.com/abstract=2659671 or http://dx.doi.org/10.2139/ssrn.2659671

Elnaz Jalilipour Alishah (Contact Author)

University of Washington- Department of Information Systems and Operations Management ( email )

Box 353200
Seattle, WA 98195-3200
United States
2065430552 (Phone)

HOME PAGE: http://staff.washington.edu/jalilipo

Kamran Moinzadeh

University of Washington, Seattle ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543-1932 (Phone)

HOME PAGE: http://foster.uw.edu/faculty-research/directory/kamran-moinzadeh/

Yong-Pin Zhou

University of Washington - Department of Information Systems and Operations Management ( email )

BOx 353226, Foster School of Business
University of Washington
Seattle, WA Washington 98195-3226
United States

HOME PAGE: http://faculty.washington.edu/yongpin

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
893
Abstract Views
2,457
Rank
42,986
PlumX Metrics