Fulfillment by Amazon versus Fulfillment by Seller: An Interpretable Risk-Adjusted Fulfillment Model

36 Pages Posted: 23 Oct 2018 Last revised: 29 Jul 2019

See all articles by Libo Sun

Libo Sun

University of Science and Technology of China (USTC)

Guodong Lyu

National University of Singapore (NUS) - NUS Business School

Yugang Yu

University of Science and Technology of China (USTC)

Chung-Piaw Teo

NUS Business School - Department of Decision Sciences

Date Written: September 28, 2018

Abstract

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

Sun, Libo and Lyu, Guodong and Yu, Yugang and Teo, Chung-Piaw, Fulfillment by Amazon versus Fulfillment by Seller: An Interpretable Risk-Adjusted Fulfillment Model (September 28, 2018). Available at SSRN: https://ssrn.com/abstract=3256746 or http://dx.doi.org/10.2139/ssrn.3256746

Libo Sun

University of Science and Technology of China (USTC) ( email )

School of Management, 96 Jinzhai Road
Hefei, Anhui 230026
China

Guodong Lyu (Contact Author)

National University of Singapore (NUS) - NUS Business School

15 Kent Ridge Drive
Singapore, 119245
Singapore

Yugang Yu

University of Science and Technology of China (USTC) ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China

Chung-Piaw Teo

NUS Business School - Department of Decision Sciences ( email )

15 Kent Ridge Drive
Mochtar Riady Building, BIZ 1 8-69
119245
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
90
Abstract Views
328
rank
284,083
PlumX Metrics