Go Wide or Go Deep? Assortment Strategy and Order Fulfillment in Online Retail
43 Pages Posted: 23 Nov 2022
Date Written: February 20, 2019
Problem Definition: Expansions in product assortment by online retailers often engender operational challenges. In undertaking such expansions, retailers exercise a strategic choice between expanding assortment width or depth. Our understanding of how this choice affects the order fulfillment process is limited. Thus, we examine the impact of these dimensions of assortment strategy on order delivery timeliness.
Academic/Practical Relevance: Order delivery timeliness is a critical measure of operational success in online retail. We contribute to theory and practice by adopting a multi-dimensional perspective of retailer assortment strategy and studying the relative impact of assortment width and depth on order delivery timeliness.
Methodology: Employing a dataset comprising more than 200 million orders, we study the effects of assortment strategy on delivery timeliness using an instrumental variable approach. We then utilize a two-stage model to estimate the impact of delivery performance on sales. Further, we employ a matched difference-in-differences and a novel Bayesian structural time-series model to confirm this relationship.
Results: We find that assortment width has a greater negative impact on order delivery timeliness compared to assortment depth. A one-standard deviation increase in assortment width increases average delivery times by 0.55 days. Further, we find this effect to be positively moderated (i.e., worsened) by the average size of orders and to be negatively moderated (i.e., improved) by the logistic service provider's (LSP) experience. Finally, a one-day increase in delivery times for 10% of the orders results in a 2.7% reduction in sales.
Managerial Implications: Our findings suggest that online retailers focused on ensuring timely deliveries should be wary of widening product assortments, especially when facing larger average order sizes. We also find that experienced logistic service providers (LSPs) can help mitigate the dilatory effects of assortment width expansions. However, the benefits of experienced LSPs are limited for retailers deepening their assortments.
Keywords: assortment planning; order fulfillment; empirical operations management; online retail
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