A brick-and-mortar retailer can fulfill online customer orders in two ways (i) Buy Online Fulfill from Store (BOFS) - Picked from store inventory, and (ii) Fulfill from Distribution Center (FDC) - Picked from DC or warehouse inventory. The fulfillment decision is made in real time for each order, with the primary goal of maximizing the revenue value of the store inventory. Analysis of sales data in both online and store channels is used to forecast the value of the dispersed inventory, and then develop a prescriptive model for making a fulfillment decision

Das, Sanchoy

Zhang, Jingran

English

Marshall University

Marshall UniversityMarshall Digital ScholarFaculty Research Day 2018 FallNov 9th, 12:20 PM - 12:40 PMUsing Omnichannel Sales Data Analytics toDecide Between Store and Distribution CenterFulfillment OptionsJingran ZhangMarshall University, zhangjin@marshall.eduSanchoy DasFollow this and additional works at: https://mds.marshall.edu/business_faculty_research_dayPart of the Business CommonsThis Event is brought to you for free and open access by the Lewis College of Business at Marshall Digital Scholar. It has been accepted for inclusion inFaculty Research Day by an authorized administrator of Marshall Digital Scholar. For more information, please contact zhangj@marshall.edu,beachgr@marshall.edu.Zhang, Jingran and Das, Sanchoy, "Using Omnichannel Sales Data Analytics to Decide Between Store and Distribution CenterFulfillment Options" (2018). Faculty Research Day. 4.https://mds.marshall.edu/business_faculty_research_day/2018/fall/4USING OMNI-CHANNEL SALES DATA ANALYTICS TODECIDE BETWEEN STORE AND DISTRIBUTION CENTER FULFILLMENT OPTIONSJingran ZhangLewis College of BusinessMarshall University, Huntington, WV, USASanchoy DasDepartment of Mechanical & Industrial EngineeringNew Jersey Institute of Technology, Newark, NJ, USAOMNI-CHANNEL RETAILING• Brick-and-mortar stores (offline) or Web stores (online)• Buy from store or ship from fulfillment centerSingle Channel• Digital revolution• Both offline and online• Interactive but separate channels• Buy from store or ship from fulfillment centerMulti-Channel • Integrated channels providing seamless retailing experiences• Centralized management• Buy from store or ship from fulfillment center• Buy online fulfill from storeOmni-ChannelE-FULFILMENT AND DISTRIBUTIONMelacini, Perotti, Rasini and Tappia (2018) provided a comprehensive review on E-retailing and logistics system in Omni-channel retailing. In detail, these papers orresearch could be grouped into three categories.• Distribution network design– Internet Fulfillment Center– Central warehouse + stores• Inventory and capacity management– Inventory Assortment and cost– Inventory pooling and sharing– Replenishment Policies• Delivery planning and execution– Last mile delivery– Buy online fulfill by store (BOFS)• Click and Collect• Click and DriveINSIDE ECOMMERCE GROWTH – WALMART• Walmart operates nearly 4,800U.S. stores, including 3,600supercenter stores, with morethan 700 automated pickuptowers for online order pickupand more than 1,800 locationswith grocery curbside pickup.• Walmart’s next-generation e-commerce fulfillment network isbased on Omni-channel retailing,involving 12 large-scale e-commerce fulfillment centers,Walmart distribution centers, e-commerce facilities, stores andtransportation fleet. Fulfillment objective: to provideseamless shopping experience andfast delivery to customerTHE OMNI-CHANNEL RETAIL FULFILLMENT PROCESS• The Omni-channel operational challenges: 1) in-store inventory isshared across channels; 2) Online orders picking up or fulfilling fromstore is convenient to local customer but has high replenishment andholding cost in-store; 3) Delivery speed affects customers’ channelpreference.• The Omni-channel retail fulfillment process includes online andoffline channels, considering stochastic channel demand, centralcontrolled and allocated replenishment, inventory availability, andthe probability of cross-channel fulfillment.𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐 𝑐𝑐𝑐𝑐 𝐹𝐹𝐹𝐹𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐 𝑐𝑐𝑐𝑐 𝑅𝑅𝑐𝑐𝑐𝑐𝑠𝑠𝑅𝑅𝐵𝐵𝐵𝐵𝐵𝐵 𝑓𝑓𝑠𝑠𝑐𝑐𝑓𝑓 𝑅𝑅𝑐𝑐𝑐𝑐𝑠𝑠𝑅𝑅𝐹𝐹𝐵𝐵𝑅𝑅𝑓𝑓𝑅𝑅𝑅𝑅𝑅𝑅 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐 𝑓𝑓𝑠𝑠𝑐𝑐𝑓𝑓 𝐹𝐹𝐹𝐹𝑅𝑅𝑐𝑐𝑐𝑐𝑐𝑐𝑠𝑠 𝑐𝑐𝐵𝐵𝑐𝑐 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑭𝑭𝑭𝑭𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑫𝑫𝑶𝑶𝑫𝑫𝑫𝑫𝑶𝑶𝑫𝑫𝑺𝑺𝑶𝑶 𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝑶𝑶𝑫𝑫𝑶𝑶𝑫𝑫𝑫𝑫𝑶𝑶𝑫𝑫SYSTEM OBJECTIVE FOR COST MINIMIZATION• Omni-channel retail fulfillment process objective is to maximize customershopping experience with fast delivery, low total cost and stock-out risk.System design objective is using stores as shared inventory for fastfulfillment, while the operational objective is to identify thereplenishment allocation and fulfillment across channels for minimizingtotal order fulfillment cost and stock-out risk.• System identifies the subset of online orders fulfilled by stores andreplenishment policies to both channels. Replenishment allocation andfulfillment choice are constrained by the inventory state and channeldemand.• Economic Solution:• No stock-out risk, in-time fulfillment, inventory keeps balance for both channel• Non-economic Solution:• BOFS fulfill majority of online demand, Store stock out, fulfillment center overstockFULFILLMENT DECISION – AN EXAMPLE• Consider a fulfillment center with one store in the same region,replenished by a bulk of 2000 units products.• Given the demand prediction is 2000 units.• The ratio customer prefer online to store is 80%.• Unit replenishment cost to FC is 10% less thanthat to store.• Stock-out cost is 0.• Unit fulfillment cost to FC is 10% less than that tostore.• Unit holding cost in FC is 20% less than that in store.• Current store inventory level is 100 units and that of FC is 500 units.Replenishment decision: 2000 units to Fulfillment center and 0 to store;Fulfillment decision: 1600 online demand by fulfillment center, 0 from store.FC500Store100os200016001600400020001000THE OMNI-CHANNEL RETAIL FULFILLMENT PERIODIC MODELAssumptions:1. No price advantage in each channel.2. No transshipment between two channels and stores.3. Store and online retail demand are forecasted from periodically updatedsales data within past n periods.4. This model is solved period by period where the inventory level and demandforecasting are adjusted to the updated actual sales.5. In a region, a fulfillment center shares multiple local stores’ stock6. Buy online fulfilled by store occurs via two approaches: when fulfillmentcenter is out of stock to complete a single customer order; or when customerselects to ship from store and store has inventory to fulfill the order.𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐 𝑐𝑐𝑐𝑐 𝐹𝐹𝐹𝐹𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐 𝑐𝑐𝑐𝑐 𝑅𝑅𝑐𝑐𝑐𝑐𝑠𝑠𝑅𝑅𝐵𝐵𝐵𝐵𝐵𝐵 𝑓𝑓𝑠𝑠𝑐𝑐𝑓𝑓 𝑅𝑅𝑐𝑐𝑐𝑐𝑠𝑠𝑅𝑅𝐹𝐹𝐵𝐵𝑅𝑅𝑓𝑓𝑅𝑅𝑅𝑅𝑅𝑅 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐 𝑓𝑓𝑠𝑠𝑐𝑐𝑓𝑓 𝐹𝐹𝐹𝐹𝑅𝑅𝑐𝑐𝑐𝑐𝑐𝑐𝑠𝑠 𝑐𝑐𝐵𝐵𝑐𝑐 𝑐𝑐𝑐𝑐𝑅𝑅𝑐𝑐𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑭𝑭𝑭𝑭𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑫𝑫𝑶𝑶𝑫𝑫𝑫𝑫𝑶𝑶𝑫𝑫𝑺𝑺𝑶𝑶 𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝑶𝑶𝑫𝑫𝑶𝑶𝑫𝑫𝑫𝑫𝑶𝑶𝑫𝑫MIP FORMULATION – PERIODIC SOLUTION𝑀𝑀𝑅𝑅𝑅𝑅:𝑇𝑇𝑐𝑐𝑐𝑐𝑇𝑇𝑅𝑅 𝐹𝐹𝑐𝑐𝑅𝑅𝑐𝑐 = ∑𝑖𝑖�𝐹𝐹𝐹𝐹,𝑖𝑖𝑄𝑄𝐹𝐹,𝑡𝑡,𝑖𝑖 + 𝑋𝑋𝑡𝑡,𝑖𝑖,𝐹𝐹𝛼𝛼𝐹𝐹,𝑖𝑖 +𝐻𝐻𝐹𝐹,𝑖𝑖𝐼𝐼𝑡𝑡,𝑖𝑖,𝐹𝐹 + ∑𝑠𝑠�𝐹𝐹𝑆𝑆,𝑖𝑖𝑄𝑄𝑠𝑠,𝑡𝑡,𝑖𝑖 + 𝑋𝑋𝑡𝑡,𝑖𝑖,𝐵𝐵,𝑠𝑠𝛼𝛼𝐵𝐵,𝑖𝑖 + 𝐻𝐻𝑠𝑠,𝑖𝑖𝐼𝐼𝑡𝑡,𝑖𝑖,𝑠𝑠 + Where:Qm,t,i Replenishment Allocation to Channel mXt, i, m Channel Salesm F – Fulfilment centerS – Store (stock out)B – Buy Online Fulfill from StoreIt, m Inventory in Channel m𝛿𝛿m,t, i Demand Prediction in Channel mαm, i Fulfillment cost for Channel mCm, i Replenishment Promising cost to Channel mHm, i Holding cost in Channel m𝛽𝛽i Stock out cost in storePERIODIC MODEL WITH PRODUCT INDEPENDENCE1. Assume only one store in each region shares inventory with the local FC.2. All products are independently processed for fulfillment.A single-product periodic solved model is simplified as below:𝑂𝑂𝑂𝑂𝑂𝑂𝑅𝑅𝑐𝑐𝑐𝑐𝑅𝑅𝑂𝑂𝑅𝑅:𝑀𝑀𝑅𝑅𝑅𝑅:𝑇𝑇𝑐𝑐𝑐𝑐𝑇𝑇𝑅𝑅 𝐹𝐹𝑐𝑐𝑅𝑅𝑐𝑐𝑡𝑡= 𝐹𝐹𝐹𝐹𝑄𝑄𝐹𝐹,𝑡𝑡 + 𝐹𝐹𝑆𝑆𝑄𝑄𝑆𝑆,𝑡𝑡 + 𝛼𝛼𝐹𝐹𝑋𝑋𝐹𝐹,𝑡𝑡 + 𝛼𝛼𝐵𝐵𝑋𝑋𝐵𝐵,𝑡𝑡 + 𝛽𝛽𝑋𝑋𝑆𝑆,𝑡𝑡 + 𝐻𝐻𝑠𝑠𝐼𝐼𝑠𝑠,𝑡𝑡 + 𝐻𝐻𝐹𝐹𝐼𝐼𝐹𝐹,𝑡𝑡𝑅𝑅. 𝑐𝑐.𝑄𝑄𝐵𝐵,𝑡𝑡 = 𝑄𝑄𝐹𝐹,𝑡𝑡 + 𝑄𝑄𝑆𝑆,𝑡𝑡𝐼𝐼𝑆𝑆,𝑡𝑡+1 ≥ 𝐼𝐼𝑆𝑆,𝑡𝑡 + 𝑄𝑄𝑆𝑆,𝑡𝑡 − 𝑋𝑋𝐵𝐵,𝑡𝑡𝐼𝐼𝑆𝑆,𝑡𝑡+1 ≥ 0𝐼𝐼𝐹𝐹,𝑡𝑡+1 = 𝐼𝐼𝐹𝐹,𝑡𝑡 + 𝑄𝑄𝐹𝐹,𝑡𝑡 − 𝑋𝑋𝐹𝐹,𝑡𝑡𝑋𝑋𝑆𝑆,𝑡𝑡 ≥ 𝛿𝛿𝑆𝑆,𝑡𝑡 − 𝐼𝐼𝑆𝑆,𝑡𝑡+1𝑋𝑋𝑆𝑆,𝑡𝑡 ≥ 0𝑋𝑋𝐵𝐵,𝑡𝑡 + 𝑋𝑋𝐹𝐹,𝑡𝑡 = 𝛿𝛿𝑂𝑂,𝑡𝑡𝛿𝛿𝑆𝑆,𝑡𝑡 = 𝑓𝑓𝑛𝑛(𝛿𝛿𝑆𝑆,𝑡𝑡−1, 𝛿𝛿𝑆𝑆,𝑡𝑡−2, 𝛿𝛿𝑆𝑆,𝑡𝑡−3, … , 𝛿𝛿𝑆𝑆,𝑡𝑡−𝑛𝑛)𝛿𝛿𝑂𝑂,𝑡𝑡 = 𝑓𝑓𝑛𝑛 𝛿𝛿𝑆𝑆,𝑡𝑡−1, 𝛿𝛿𝑆𝑆,𝑡𝑡−2, 𝛿𝛿𝑆𝑆,𝑡𝑡−3, … , 𝛿𝛿𝑆𝑆,𝑡𝑡−𝑛𝑛𝐴𝐴𝑅𝑅𝑅𝑅 𝐼𝐼,𝑋𝑋 𝑇𝑇𝑅𝑅𝑎𝑎 𝑄𝑄 ≥ 0FAST SOLUTIONS• Price Advantage oriented solution:– When either channel has a price advantage, customers are motivated topurchase or be fulfilled from that channel, the replenishment and fulfillmentsolution will has a bias on offline channel.• Cost oriented solution:– When either channel has a large replenishment or fulfillment cost, system istended to use the other channel for product sales, to the purpose of reducingthe total cost fulfilling customers’ orders.• Stock out loss oriented solution:– When stock-out loss is relatively small or even 0, store prefers to fulfillonline demand. Replenishment solution depends on the relationship amongunit replenishment and fulfillment cost in stores and FC.SUMMARY• Omni-channel fulfillment has two channels and three approaches to fulfillboth online customer orders and in-store visits.• Buy Online Fulfilled by the stores takes advantage from stores anddistribution centers of Omni-channel retailers competing with pureonline retailers on fast fulfillment.• With a predetermined replenishment to the region, decisions onassortment and order fulfillment approach for cost reduction, aregenerated periodically and learning from historical sales data.• Instead of cost factor driven decision, the objective is enhanced byimplementing a customer satisfaction vector with fulfillment time andproduct variety included.• BOFS can be considered as online orders picked up in store, where orderfulfillment decision would be biased on online customer preference.

Using Omnichannel Sales Data Analytics to Decide Between Store and Distribution Center Fulfillment Options

https://mds.marshall.edu/cgi/viewcontent.cgi?article=1006&amp;context=business_faculty_research_day

Using Omnichannel Sales Data Analytics to Decide Between Store and Distribution Center Fulfillment Options

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