IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v272y2019i3p1028-1040.html
   My bibliography  Save this article

Profitability of online order fulfillment in multi-channel retailing

Author

Listed:
  • Ishfaq, Rafay
  • Bajwa, Naeem

Abstract

Store-based retailers have been concerned about the high fulfillment costs and low gross margins of their online sales. This paper incorporates such issues in a non-linear mixed-integer profit maximization model of the online order fulfillment process for multi-channel retailers. A solution approach based on an iterative outer-approximation technique is developed. Using empirical data from a large U.S. retailer, the profitability of different options used by multi-channel retailers to fill online orders is evaluated. Managerial insights are developed through a factorial research design that highlights the effect of relevant logistics processes and fulfillment methods on the profitability of online sales for retailers.

Suggested Citation

  • Ishfaq, Rafay & Bajwa, Naeem, 2019. "Profitability of online order fulfillment in multi-channel retailing," European Journal of Operational Research, Elsevier, vol. 272(3), pages 1028-1040.
    • Handle: RePEc:eee:ejores:v:272:y:2019:i:3:p:1028-1040
    DOI: 10.1016/j.ejor.2018.07.047
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221718306696
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2018.07.047?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. William L. Cooper, 2002. "Asymptotic Behavior of an Allocation Policy for Revenue Management," Operations Research, INFORMS, vol. 50(4), pages 720-727, August.
    2. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    3. Naeem Bajwa & Charles R. Sox, 2015. "Coordination of pricing, advertising, and production decisions for multiple products," International Journal of Services and Operations Management, Inderscience Enterprises Ltd, vol. 22(4), pages 495-521.
    4. Jayashankar M. Swaminathan & Sridhar R. Tayur, 2003. "Models for Supply Chains in E-Business," Management Science, INFORMS, vol. 49(10), pages 1387-1406, October.
    5. Ishfaq, Rafay & Sox, Charles R., 2011. "Hub location-allocation in intermodal logistic networks," European Journal of Operational Research, Elsevier, vol. 210(2), pages 213-230, April.
    6. Mahar, Stephen & Bretthauer, Kurt M. & Venkataramanan, M.A., 2009. "The value of virtual pooling in dual sales channel supply chains," European Journal of Operational Research, Elsevier, vol. 192(2), pages 561-575, January.
    7. Serguei Netessine & Nils Rudi, 2006. "Supply Chain Choice on the Internet," Management Science, INFORMS, vol. 52(6), pages 844-864, June.
    8. Chatwin, Richard E., 2000. "Optimal dynamic pricing of perishable products with stochastic demand and a finite set of prices," European Journal of Operational Research, Elsevier, vol. 125(1), pages 149-174, August.
    9. Alptekinoglu, Aydin & Tang, Christopher S., 2005. "A model for analyzing multi-channel distribution systems," European Journal of Operational Research, Elsevier, vol. 163(3), pages 802-824, June.
    10. Wen Zhao & Yu-Sheng Zheng, 2000. "Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand," Management Science, INFORMS, vol. 46(3), pages 375-388, March.
    11. Torabi, S.A. & Hassini, E. & Jeihoonian, M., 2015. "Fulfillment source allocation, inventory transshipment, and customer order transfer in e-tailing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 79(C), pages 128-144.
    12. Liu, Kaijun & Zhou, Yonghong & Zhang, Zigang, 2010. "Capacitated location model with online demand pooling in a multi-channel supply chain," European Journal of Operational Research, Elsevier, vol. 207(1), pages 218-231, November.
    13. Kevin Chiang, Wei-yu & Monahan, George E., 2005. "Managing inventories in a two-echelon dual-channel supply chain," European Journal of Operational Research, Elsevier, vol. 162(2), pages 325-341, April.
    14. Agatz, Niels A.H. & Fleischmann, Moritz & van Nunen, Jo A.E.E., 2008. "E-fulfillment and multi-channel distribution - A review," European Journal of Operational Research, Elsevier, vol. 187(2), pages 339-356, June.
    15. Awi Federgruen & Aliza Heching, 1999. "Combined Pricing and Inventory Control Under Uncertainty," Operations Research, INFORMS, vol. 47(3), pages 454-475, June.
    16. Shiming Deng & Candace A. Yano, 2006. "Joint Production and Pricing Decisions with Setup Costs and Capacity Constraints," Management Science, INFORMS, vol. 52(5), pages 741-756, May.
    17. Aksen, Deniz & Altinkemer, Kemal, 2008. "A location-routing problem for the conversion to the "click-and-mortar" retailing: The static case," European Journal of Operational Research, Elsevier, vol. 186(2), pages 554-575, April.
    18. Gabriel Bitran & René Caldentey, 2003. "An Overview of Pricing Models for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 203-229, August.
    19. Wang, Tai-Yue & Hu, Jui-Ming, 2008. "An inventory control system for products with optional components under service level and budget constraints," European Journal of Operational Research, Elsevier, vol. 189(1), pages 41-58, August.
    20. Gadi Fibich & Arieh Gavious & Oded Lowengart, 2003. "Explicit Solutions of Optimization Models and Differential Games with Nonsmooth (Asymmetric) Reference-Price Effects," Operations Research, INFORMS, vol. 51(5), pages 721-734, October.
    21. Cao, James & So, Kut C. & Yin, Shuya, 2016. "Impact of an “online-to-store” channel on demand allocation, pricing and profitability," European Journal of Operational Research, Elsevier, vol. 248(1), pages 234-245.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Salmani, Yasamin & Partovi, Fariborz Y., 2021. "Channel-level resource allocation decision in multichannel retailing: A U.S. multichannel company application," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    2. Zhou, Rui & Liao, Yi & Shen, Wenjing & Yang, Shilei, 2020. "Channel selection and fulfillment service contracts in the presence of asymmetric service information," International Journal of Production Economics, Elsevier, vol. 222(C).
    3. Millstein, Mitchell A. & Bilir, Canser & Campbell, James F., 2022. "The effect of optimizing warehouse locations on omnichannel designs," European Journal of Operational Research, Elsevier, vol. 301(2), pages 576-590.
    4. Pichka, Khosro & Alwan, Layth C. & Yue, Xiaohang, 2022. "Fulfillment and pricing optimization for omni-channel retailers considering shipment of in-store demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 167(C).
    5. Abadie, Amelie & Roux, Mélanie & Chowdhury, Soumyadeb & Dey, Prasanta, 2023. "Interlinking organisational resources, AI adoption and omnichannel integration quality in Ghana’s healthcare supply chain," Journal of Business Research, Elsevier, vol. 162(C).
    6. Mohammad Heydari & Kin Keung Lai & Xiaohu Zhou, 2020. "Creating Sustainable Order Fulfillment Processes through Managing the Risk: Evidence from the Disposable Products Industry," Sustainability, MDPI, vol. 12(7), pages 1-32, April.
    7. Hübner, Alexander & Hense, Jonas & Dethlefs, Christian, 2022. "The revival of retail stores via omnichannel operations: A literature review and research framework," European Journal of Operational Research, Elsevier, vol. 302(3), pages 799-818.
    8. Zhang, Yuankai & Lin, Wei-Hua & Huang, Minfang & Hu, Xiangpei, 2021. "Multi-warehouse package consolidation for split orders in online retailing," European Journal of Operational Research, Elsevier, vol. 289(3), pages 1040-1055.
    9. Valentín Pando & Luis A. San-José & Joaquín Sicilia, 2021. "An Inventory Model with Stock-Dependent Demand Rate and Maximization of the Return on Investment," Mathematics, MDPI, vol. 9(8), pages 1-18, April.
    10. Difrancesco, Rita Maria & van Schilt, Isabelle M. & Winkenbach, Matthias, 2021. "Optimal in-store fulfillment policies for online orders in an omni-channel retail environment," European Journal of Operational Research, Elsevier, vol. 293(3), pages 1058-1076.
    11. He, Bo & Mirchandani, Prakash & Shen, Qichao & Yang, Guang, 2021. "How should local Brick-and-Mortar retailers offer delivery service in a pandemic World? Self-building Vs. O2O platform," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 154(C).
    12. Marta Viu-Roig & Eduard J. Alvarez-Palau, 2020. "The Impact of E-Commerce-Related Last-Mile Logistics on Cities: A Systematic Literature Review," Sustainability, MDPI, vol. 12(16), pages 1-19, August.
    13. Arslan, Ayşe N. & Klibi, Walid & Montreuil, Benoit, 2021. "Distribution network deployment for omnichannel retailing," European Journal of Operational Research, Elsevier, vol. 294(3), pages 1042-1058.
    14. Mar Vazquez-Noguerol & Jose Comesaña-Benavides & Raul Poler & J. Carlos Prado-Prado, 2022. "An optimisation approach for the e-grocery order picking and delivery problem," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 30(3), pages 961-990, September.
    15. Dai, B. & Chen, H.X. & Li, Y.A. & Zhang, Y.D. & Wang, X.Q. & Deng, Y.M., 2021. "Inventory replenishment planning of a distribution system with storage capacity constraints and multi-channel order fulfilment," Omega, Elsevier, vol. 102(C).
    16. Mashalah, Heider Al & Hassini, Elkafi & Gunasekaran, Angappa & Bhatt (Mishra), Deepa, 2022. "The impact of digital transformation on supply chains through e-commerce: Literature review and a conceptual framework," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Millstein, Mitchell A. & Bilir, Canser & Campbell, James F., 2022. "The effect of optimizing warehouse locations on omnichannel designs," European Journal of Operational Research, Elsevier, vol. 301(2), pages 576-590.
    2. Hübner, Alexander & Hense, Jonas & Dethlefs, Christian, 2022. "The revival of retail stores via omnichannel operations: A literature review and research framework," European Journal of Operational Research, Elsevier, vol. 302(3), pages 799-818.
    3. Alexander Hübner & Andreas Holzapfel & Heinrich Kuhn, 2016. "Distribution systems in omni-channel retailing," Business Research, Springer;German Academic Association for Business Research, vol. 9(2), pages 255-296, August.
    4. Ting Qu & Tianxiang Huang & Duxian Nie & Yelin Fu & Lin Ma & George Q. Huang, 2022. "Joint Decisions of Inventory Optimization and Order Allocation for Omni-Channel Multi-Echelon Distribution Network," Sustainability, MDPI, vol. 14(10), pages 1-23, May.
    5. Yongbo Xiao, 2018. "Dynamic pricing and replenishment: Optimality, bounds, and asymptotics," Naval Research Logistics (NRL), John Wiley & Sons, vol. 65(1), pages 3-25, February.
    6. Hyun-soo Ahn & Mehmet Gümüş & Philip Kaminsky, 2007. "Pricing and Manufacturing Decisions When Demand Is a Function of Prices in Multiple Periods," Operations Research, INFORMS, vol. 55(6), pages 1039-1057, December.
    7. Mitchell A. Millstein & James F. Campbell, 2018. "Total Hockey Optimizes Omnichannel Facility Locations," Interfaces, INFORMS, vol. 48(4), pages 340-356, August.
    8. Alawneh, Fawzat & Zhang, Guoqing, 2018. "Dual-channel warehouse and inventory management with stochastic demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 112(C), pages 84-106.
    9. Chen, Jing & Wang, Jian & Bell, Peter C., 2014. "Lease expiration management for a single lease term in the apartment industry," European Journal of Operational Research, Elsevier, vol. 238(1), pages 233-244.
    10. Netessine, Serguei, 2006. "Dynamic pricing of inventory/capacity with infrequent price changes," European Journal of Operational Research, Elsevier, vol. 174(1), pages 553-580, October.
    11. Constantinos Maglaras & Joern Meissner, 2006. "Dynamic Pricing Strategies for Multiproduct Revenue Management Problems," Manufacturing & Service Operations Management, INFORMS, vol. 8(2), pages 136-148, July.
    12. Georgia Perakis & Melvyn Sim & Qinshen Tang & Peng Xiong, 2023. "Robust Pricing and Production with Information Partitioning and Adaptation," Management Science, INFORMS, vol. 69(3), pages 1398-1419, March.
    13. Syed Asif Raza & Rafi Ashrafi & Ali Akgunduz, 2020. "A bibliometric analysis of revenue management in airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(6), pages 436-465, December.
    14. Cao, Ping & Li, Jianbin & Yan, Hong, 2012. "Optimal dynamic pricing of inventories with stochastic demand and discounted criterion," European Journal of Operational Research, Elsevier, vol. 217(3), pages 580-588.
    15. Doan, Xuan Vinh & Lei, Xiao & Shen, Siqian, 2020. "Pricing of reusable resources under ambiguous distributions of demand and service time with emerging applications," European Journal of Operational Research, Elsevier, vol. 282(1), pages 235-251.
    16. Dan Zhang & Larry Weatherford, 2017. "Dynamic Pricing for Network Revenue Management: A New Approach and Application in the Hotel Industry," INFORMS Journal on Computing, INFORMS, vol. 29(1), pages 18-35, February.
    17. Li, Shuqin & Jia, Shuai, 2019. "A Benders decomposition algorithm for the order fulfilment problem of an e-tailer with a self-owned logistics system," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 463-480.
    18. Rodríguez, Betzabé & Aydın, Göker, 2015. "Pricing and assortment decisions for a manufacturer selling through dual channels," European Journal of Operational Research, Elsevier, vol. 242(3), pages 901-909.
    19. Serguei Netessine & Sergei Savin & Wenqiang Xiao, 2006. "Revenue Management Through Dynamic Cross Selling in E-Commerce Retailing," Operations Research, INFORMS, vol. 54(5), pages 893-913, October.
    20. Ibrahim, Michael Nawar & Atiya, Amir F., 2016. "Analytical solutions to the dynamic pricing problem for time-normalized revenue," European Journal of Operational Research, Elsevier, vol. 254(2), pages 632-643.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:272:y:2019:i:3:p:1028-1040. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.