IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v37y2009i4p896-908.html
   My bibliography  Save this article

A (Q,R) inventory model with a drop-shipping option for e-business

Author

Listed:
  • Khouja, Moutaz
  • Stylianou, Antonis C.

Abstract

Drop shipping is used by online as well as traditional retailers as an order fulfillment strategy. A retailer simply forwards customers' orders to the manufacturer or a distributor who fills the orders directly to the customers and is paid a predetermined price by the retailer. For the retailer, advantages of drop shipping include lower holding, handling, and shortage costs. Disadvantages include increased per-unit cost, fragmented order delivery when a single customer order involves products from different manufacturers, longer delivery times, and increased order processing cost. In this paper, we develop two (Q,R) inventory models that allow a retailer to use the drop-shipping option in case of a shortage during lead-time. In the first model, the units short are backordered whereas in the second model sales are lost. We provide closed-form results for exponential and uniform demand distributions. We perform numerical sensitivity analysis and illustrate the results with numerical examples.

Suggested Citation

  • Khouja, Moutaz & Stylianou, Antonis C., 2009. "A (Q,R) inventory model with a drop-shipping option for e-business," Omega, Elsevier, vol. 37(4), pages 896-908, August.
    • Handle: RePEc:eee:jomega:v:37:y:2009:i:4:p:896-908
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305-0483(08)00083-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    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. Hua, Zhongsheng & Li, Sijie, 2008. "Impacts of demand uncertainty on retailer's dominance and manufacturer-retailer supply chain cooperation," Omega, Elsevier, vol. 36(5), pages 697-714, October.
    2. Bichescu, Bogdan C. & Fry, Michael J., 2009. "A numerical analysis of supply chain performance under split decision rights," Omega, Elsevier, vol. 37(2), pages 358-379, April.
    3. Yao, Dong-Qing & Yue, Xiaohang & Mukhopadhyay, Samar K. & Wang, Ziping, 2009. "Strategic inventory deployment for retail and e-tail stores," Omega, Elsevier, vol. 37(3), pages 646-658, June.
    4. Yao, Dong-Qing & Liu, John J., 2005. "Competitive pricing of mixed retail and e-tail distribution channels," Omega, Elsevier, vol. 33(3), pages 235-247, June.
    5. Ayanso, Anteneh & Diaby, Moustapha & Nair, Suresh K., 2006. "Inventory rationing via drop-shipping in Internet retailing: A sensitivity analysis," European Journal of Operational Research, Elsevier, vol. 171(1), pages 135-152, May.
    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. Changkyu Park, 2017. "A Partial Backordering Inventory Model with a Drop-Shipping Option Under Purchase Dependence," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(04), pages 1-20, August.
    2. Qiu, Ruozhen & Sun, Yue & Sun, Minghe, 2022. "A robust optimization approach for multi-product inventory management in a dual-channel warehouse under demand uncertainties," Omega, Elsevier, vol. 109(C).
    3. He, Bo & Gupta, Varun & Mirchandani, Prakash, 2021. "Online selling through O2O platform or on your own? Strategic implications for local Brick-and-Mortar stores," Omega, Elsevier, vol. 103(C).
    4. 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.
    5. Ramzi Hammami & Erfan Asgari & Yannick Frein & Imen Nouira, 2022. "Time- and price-based product differentiation in hybrid distribution with stockout-based substitution," Post-Print hal-03696900, HAL.
    6. Leonard Calin ABRUDAN & Mirabela Constanta MATEI & Maria Madela ABRUDAN, 2018. "Running A Business Through A Sharing Responsibilities (And Profits) Strategy," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 12(1), pages 28-38, November.
    7. Hammami, Ramzi & Asgari, Erfan & Frein, Yannick & Nouira, Imen, 2022. "Time- and price-based product differentiation in hybrid distribution with stockout-based substitution," European Journal of Operational Research, Elsevier, vol. 300(3), pages 884-901.
    8. Kim, Nayeon & Montreuil, Benoit & Klibi, Walid, 2022. "Inventory availability commitment under uncertainty in a dropshipping supply chain," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1155-1174.
    9. Li, Guo & Zhang, Xuefeng & Liu, Mengqi, 2019. "E-tailer’s procurement strategies for drop-shipping: Simultaneous vs. sequential approach to two manufacturers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 108-127.
    10. Yu, Dennis Z. & Cheong, Taesu & Sun, Daewon, 2017. "Impact of supply chain power and drop-shipping on a manufacturer’s optimal distribution channel strategy," European Journal of Operational Research, Elsevier, vol. 259(2), pages 554-563.
    11. Cobb, Barry R. & Johnson, Alan W. & Rumí, Rafael & Salmerón, Antonio, 2015. "Accurate lead time demand modeling and optimal inventory policies in continuous review systems," International Journal of Production Economics, Elsevier, vol. 163(C), pages 124-136.

    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. 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.
    2. Chen, Jing & Zhang, Hui & Sun, Ying, 2012. "Implementing coordination contracts in a manufacturer Stackelberg dual-channel supply chain," Omega, Elsevier, vol. 40(5), pages 571-583.
    3. Zhang, Peng & He, Yong & Shi, Chunming (Victor), 2017. "Retailer's channel structure choice: Online channel, offline channel, or dual channels?," International Journal of Production Economics, Elsevier, vol. 191(C), pages 37-50.
    4. Matsui, Kenji, 2016. "Asymmetric product distribution between symmetric manufacturers using dual-channel supply chains," European Journal of Operational Research, Elsevier, vol. 248(2), pages 646-657.
    5. Niu, Baozhuang & Wang, Yulan & Guo, Pengfei, 2015. "Equilibrium pricing sequence in a co-opetitive supply chain with the ODM as a downstream rival of its OEM," Omega, Elsevier, vol. 57(PB), pages 249-270.
    6. Ding, Qing & Dong, Ciwei & Pan, Zhicong, 2016. "A hierarchical pricing decision process on a dual-channel problem with one manufacturer and one retailer," International Journal of Production Economics, Elsevier, vol. 175(C), pages 197-212.
    7. Li, Guo & Zhang, Xuefeng & Liu, Mengqi, 2019. "E-tailer’s procurement strategies for drop-shipping: Simultaneous vs. sequential approach to two manufacturers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 108-127.
    8. Hamed Jafari & Seyed Reza Hejazi & Morteza Rasti-Barzoki, 2016. "Pricing Decisions in Dual-Channel Supply Chain Including Monopolistic Manufacturer and Duopolistic Retailers: A Game-Theoretic Approach," Journal of Industry, Competition and Trade, Springer, vol. 16(3), pages 323-343, September.
    9. Guoxuan Huang & Qing Ding & Ciwei Dong & Zhicong Pan, 2021. "Joint optimization of pricing and inventory control for dual-channel problem under stochastic demand," Annals of Operations Research, Springer, vol. 298(1), pages 307-337, March.
    10. Yu, Dennis Z. & Cheong, Taesu & Sun, Daewon, 2017. "Impact of supply chain power and drop-shipping on a manufacturer’s optimal distribution channel strategy," European Journal of Operational Research, Elsevier, vol. 259(2), pages 554-563.
    11. Yao, Dong-Qing & Yue, Xiaohang & Mukhopadhyay, Samar K. & Wang, Ziping, 2009. "Strategic inventory deployment for retail and e-tail stores," Omega, Elsevier, vol. 37(3), pages 646-658, June.
    12. Wei Hu & Yongjian Li, 2012. "Retail service for mixed retail and E-tail channels," Annals of Operations Research, Springer, vol. 192(1), pages 151-171, January.
    13. Brahami Menaouer & Semaoune Khalissa & Mohammed El Amine Belayachi & Benslimane Amine, 2021. "The Role of Drop Shipping in E-Commerce: The Algerian Case," International Journal of E-Business Research (IJEBR), IGI Global, vol. 17(4), pages 1-19, October.
    14. Yang, Hui & Chen, Jing & Chen, Xu & Chen, Bintong, 2017. "The impact of customer returns in a supply chain with a common retailer," European Journal of Operational Research, Elsevier, vol. 256(1), pages 139-150.
    15. Hayya, Jack C. & Harrison, Terry P. & He, X. James, 2011. "The impact of stochastic lead time reduction on inventory cost under order crossover," European Journal of Operational Research, Elsevier, vol. 211(2), pages 274-281, June.
    16. Nekoiemehr, Nooshin & Zhang, Guoqing & Selvarajah, Esaignani, 2019. "Due date quotation in a dual-channel supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 102-111.
    17. Yan, Ruiliang & Ghose, Sanjoy, 2010. "Forecast information and traditional retailer performance in a dual-channel competitive market," Journal of Business Research, Elsevier, vol. 63(1), pages 77-83, January.
    18. Xiaoxu Chen & Peng Xu & Thomas Walker & Shengzhong Huang, 2019. "Pricing and Ordering Decisions in a Retailer Dominant Channel Involving a Third-Party Logistics Provider," Complexity, Hindawi, vol. 2019, pages 1-15, July.
    19. Konur, Dinçer & Campbell, James F. & Monfared, Sepideh A., 2017. "Economic and environmental considerations in a stochastic inventory control model with order splitting under different delivery schedules among suppliers," Omega, Elsevier, vol. 71(C), pages 46-65.
    20. Lei Yang & Yufan Chen & Jingna Ji, 2018. "Cooperation Modes of Operations and Financing in a Low-Carbon Supply Chain," Sustainability, MDPI, vol. 10(3), pages 1-25, March.

    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:jomega:v:37:y:2009:i:4:p:896-908. 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/wps/find/journaldescription.cws_home/375/description#description .

    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.