United States Department of Transportation
i
Telemobility Technical Report: Omnichannel Retail Fulfillment Strategies
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2022-12-19
[PDF-2.39 MB]
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Edition:Final Report 8/1/20 - 1/31/23
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Abstract:In this research, we study the fulfillment strategies adopted by an omnichannel retailer in the post-pandemic context of a rapidly expanding e-commerce enterprise. The overarching goal is to identify what factors and circumstances influence the retailer’s optimal fulfillment strategies, how the retailer should allocate resources between different fulfillment channels to maximize its profit, and how the fulfillment decisions affect traffic in road networks. To this end, we develop, analyze, and test a stylized model of omnichannel retail in three phases, of which the first two are included in this report. In the first, a base model considering a retailer that owns a large distribution center and a front-end store with limited space. The customers are assumed to be homogeneous and given three channels to choose from: in-store, online with membership (which promises express delivery), and online without membership. The retailer seeks to jointly optimize the inventory in the store, price differentiation across channels, and express delivery capacity while anticipating the uncertainty in the total demand for different channels. In the second phase, the base model is extended to accommodate customers’ heterogeneous channel preferences by considering the channel-specific hassle costs as random variables that follow a joint distribution. For each model developed, we first perform theoretical analysis to generate useful insights. Numerical experiments are then conducted on a 1/3000 model of a retailer similar in scale to Amazon and Walmart, to validate the models and test their sensitivity to key parameters.
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