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Making Better Fulfillment Decisions on the Fly in an Online Retail Environment

Manufacturing & Service Operations Management, Volume 17, Issue 1

Pages 34 - 51

https://doi.org/10.1287/msom.2014.0505

Published: 01 February 2015 Publication History

Abstract

<P>Relative to brick-and-mortar retailers, online retailers have the potential to offer more options to their customers, with respect to both inventory as well as delivery times. To do this entails the management of a distribution network with more decision options than a traditional retailer. The online retailer, not the customer, decides from where items will ship, by what shipping method, and how or whether multiple-item orders will be broken up into multiple shipments. What is the best way to fulfill each customer's order to minimize average outbound shipping cost? We partner with an online retailer to examine this question. We develop a heuristic that makes fulfillment decisions by minimizing the immediate outbound shipping cost plus an estimate of future expected outbound shipping costs. These estimates are derived from the dual values of a transportation linear program (LP). In our experiments on industry data, we capture 36% of the opportunity gap assuming clairvoyance, leading to reductions in outbound shipping costs on the order of 1%. These cost savings are achieved without any deterioration in customer service levels or any increase in holding costs. The transportation LP also serves as the basis for a metric that provides information on the quality of the inventory position. Based on initial successful piloting, our industrial partner has implemented the metric as well as a version of the heuristic that it is applying to every fulfillment decision for each of its stock keeping units in North America.</P>

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Cited By

Levin M(2024)A Real-Time Control Policy to Achieve Maximum Throughput of an Online Order Fulfillment NetworkTransportation Science10.1287/trsc.2023.009658:2(434-453)Online publication date: 1-Mar-2024
https://dl.acm.org/doi/10.1287/trsc.2023.0096
Balseiro SBesbes OPizarro D(2024)Survey of Dynamic Resource-Constrained Reward Collection ProblemsOperations Research10.1287/opre.2023.244172:5(2168-2189)Online publication date: 1-Sep-2024
https://dl.acm.org/doi/10.1287/opre.2023.2441
Chen GLi XYe Y(2024)Technical Note—An Improved Analysis of LP-Based Control for Revenue ManagementOperations Research10.1287/opre.2022.235872:3(1124-1138)Online publication date: 1-May-2024
https://dl.acm.org/doi/10.1287/opre.2022.2358
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Making Better Fulfillment Decisions on the Fly in an Online Retail Environment
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cover image Manufacturing & Service Operations Management

Manufacturing & Service Operations Management Volume 17, Issue 1

February 2015

122 pages

ISSN:1526-5498

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INFORMS

Linthicum, MD, United States

Publication History

Published: 01 February 2015

Accepted: 16 September 2014

Received: 20 June 2013

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Cited By

Levin M(2024)A Real-Time Control Policy to Achieve Maximum Throughput of an Online Order Fulfillment NetworkTransportation Science10.1287/trsc.2023.009658:2(434-453)Online publication date: 1-Mar-2024
https://dl.acm.org/doi/10.1287/trsc.2023.0096
Balseiro SBesbes OPizarro D(2024)Survey of Dynamic Resource-Constrained Reward Collection ProblemsOperations Research10.1287/opre.2023.244172:5(2168-2189)Online publication date: 1-Sep-2024
https://dl.acm.org/doi/10.1287/opre.2023.2441
Chen GLi XYe Y(2024)Technical Note—An Improved Analysis of LP-Based Control for Revenue ManagementOperations Research10.1287/opre.2022.235872:3(1124-1138)Online publication date: 1-May-2024
https://dl.acm.org/doi/10.1287/opre.2022.2358
Chen SYan ZLim Y(2024)Managing the Personalized Order-Holding Problem in Online RetailingManufacturing & Service Operations Management10.1287/msom.2023.120126:1(47-65)Online publication date: 1-Jan-2024
https://dl.acm.org/doi/10.1287/msom.2023.1201
Deng QLi XLim YLiu F(2024)Optimal Policies and Heuristics to Match Supply with Demand for Online RetailingManufacturing & Service Operations Management10.1287/msom.2021.039426:5(1925-1944)Online publication date: 1-Sep-2024
https://dl.acm.org/doi/10.1287/msom.2021.0394
DeValve LPekeč SWei Y(2023)Approximate Submodularity in Network Design ProblemsOperations Research10.1287/opre.2022.240871:4(1021-1039)Online publication date: 1-Jul-2023
https://dl.acm.org/doi/10.1287/opre.2022.2408
Ma W(2023)Order-Optimal Correlated Rounding for Fulfilling Multi-Item E-Commerce OrdersManufacturing & Service Operations Management10.1287/msom.2023.121925:4(1324-1337)Online publication date: 1-Jul-2023
https://dl.acm.org/doi/10.1287/msom.2023.1219
Wagner LCalvo EAmorim P(2023)Better Together! The Consumer Implications of Delivery ConsolidationManufacturing & Service Operations Management10.1287/msom.2023.120025:3(903-920)Online publication date: 1-May-2023
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Das SRavi RSridhar S(2023)Order Fulfillment Under Pick Failure in Omnichannel Ship-From-Store ProgramsManufacturing & Service Operations Management10.1287/msom.2022.116425:2(508-523)Online publication date: 1-Mar-2023
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Gopalakrishnan SMatta MYourdshahy MChoudhary V(2023)Go Wide or Go Deep? Assortment Strategy and Order Fulfillment in Online RetailManufacturing & Service Operations Management10.1287/msom.2022.115625:3(846-861)Online publication date: 1-May-2023
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