Ship-from-store operations in omni-channel retailing

Abstract

One of the recent trends in omni-channel retailing is ship-from-store which allows a retailer to fulfill online orders from a brick-and-mortar store. The benefits of this relatively new fulfillment model includes faster delivery, lower transportation costs, higher in-stock probability, increased sales and customer service, etc. Despite the many benefits, the model introduces many new operational challenges to the retailer. Retailer needs to identify which stores should be integrated as active fulfillment centers, and from which location to satisfy an online order when it arrives. Best Buy, Macy's and Walmart successfully integrate ship-from-store to their fulfillment strategies. We consider a retailer having both online and store operations and each channel carrying its own inventory. Store orders are fulfilled from store inventories, but for an online order the retailer can ship either from the online distribution center or from any other store location that maximizes the overall profit. Our study investigates dynamic fulfillment decisions: from which location to fulfill an online order when it arrives. We incorporate the uncertainty both in demand and in the cost of shipment to individual customers. We develop a stochastic dynamic framework and present some results on optimal fulfillment strategies.