Fulfillment by Amazon versus Fulfillment by Seller: An Interpretable Risk-Adjusted Fulfillment Model
36 Pages Posted: 23 Oct 2018 Last revised: 29 Jul 2019
Date Written: September 28, 2018
With dual-channel choices, E-retailers fulfill their demands by either the inventory stored in third-party distribution centers, or by in-house inventory. In this paper, using data from a wedding gown E-retailer in China, we analyze the differences between two fulfillment choices --- Fulfillment by Amazon (FBA) and Fulfillment by Seller (FBS). In particular, we want to understand the causal effect of FBA that will bring to sales and profit, compared to FBS, and how the impact is related to product features such as sizes and colors. We develop a risk-adjusted fulfillment model to address this problem, where the e-retailer's risk attitude to FBA is incorporated. We denote the profit gaps between FBA and FBS as the rewards for this E-retailer fulfilling products using FBA, our goal is to maximize the E-retailer's total rewards using predictive analytics. We adopt the Generalized Linear Model to predict the expected rewards, while controlling for the variability of the reward distribution. We apply our model on a set of real data, and develop an explicit decision rule that can be easily implemented in practice. The numerical experiments show that our interpretable decision rule can improve the E-retailer's total rewards by about 48%.
Keywords: Dual-Channel Fulfillment; Fulfillment by Amazon; Predictive Analysis; Causal Inference; Cross-Border E-Commerce
Suggested Citation: Suggested Citation