Multi-Item Online Order Fulfillment in a Two-Layer Network

Abstract

The global e-commerce boom has driven rapid expansion of fulfillment infrastructure, with e-retailers building more warehouses to offer faster deliveries. However, fulfillment costs have surged over the past decade. This paper addresses the problem of minimizing these costs, where an e-retailer must decide in real-time which warehouse(s) will fulfill each order, considering inventory constraints. Orders can be split among warehouses at an additional cost. We focus on an RDC-FDC distribution network used by major e-retailers, which consists of larger regional distribution centers (RDCs) and smaller front distribution centers (FDCs). We analyze the performance of a simple myopic policy that selects the least expensive fulfillment option for each order without considering future impacts. We provide theoretical bounds on the performance ratio of the myopic policy compared to an optimal clairvoyant policy and demonstrate the strengths of the myopic policy within this two-layer network.

Keywords: online retailing, multi-item order, order split, fulfillment, myopic policy, online algorithm, LP rounding, competitive ratio, front distribution center (FDC)