The aggressive expansion in e-commerce sales significantly escalates online retailers' operating cost. In each period of a planning horizon, an online retailer decides on how much to replenish each product and how to allocate its inventory to fulfillment centers (FCs) before demand is known. After the demand in the period is realized, the retailer decides on which FCs to fulfill it. It is crucial to optimize the replenishment, allocation, and fulfillment decisions jointly such that the expected total operating cost is minimized. The problem is challenging because the replenishment-allocation is done in an anticipative manner under a "push" strategy, but the fulfillment is executed in a reactive manner under a "pull" strategy. We propose a multi-period stochastic optimization model to delicately integrate the anticipative replenishment-allocation decisions with the reactive fulfillment decisions such that they are determined seamlessly as the demands are realized over time. We develop a two-phase approach based on robust optimization to solve the problem. The first phase decides whether different products should be replenished in each period (binary decisions). We fix these binary decisions in the second phase, where we determine the replenishment, allocation, and fulfillment quantities. Numerical experiments suggest that our approach outperforms existing methods from the literature in solution quality and computational time, and performs within 7% of a benchmark with perfect information. A study using data from a major fashion online retailer in Asia suggests that the two-phase approach can potentially reduce the retailer's current cost by 30%. By decoupling the binary decisions from the continuous decisions, our methodology can handle large problem instances (up to 1,200 products). The integration, robustness, and adaptability of the decisions under our approach create significant values.
Yun Fong LIM is Associate Professor of Operations Management at the Lee Kong Chian School of Business, Singapore Management University (SMU). He is also Chang Jiang Chair Professor, and has been a Lee Kong Chian Fellow and an NOL Fellow. Yun Fong's research appears in Operations Research, Management Science, Manufacturing and Service Operations Management, and Production and Operations Management. He has delivered keynote and plenary speeches in several international conferences. In addition, his work has received funding by MOE and A*STAR and media coverage by The Business Times, Channel 8, and CNA938. His current research interests include e-commerce and marketplace analytics, inventory management, warehousing and fulfillment, flexible workforce and resource management, and sustainable urban logistics.
Yun Fong is a recipient of the SMU Teaching Excellence Innovative Teacher Award. He teaches both undergraduate and postgraduate courses in Operations Management. He has provided consulting service and executive development to corporations such as Maersk, McMaster-Carr Company, Resorts World Sentosa, Schneider Electrics, Temasek Holdings, and Zalora. Yun Fong obtained both his PhD and MSc degrees in Industrial and Systems Engineering from the Georgia Institute of Technology.