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.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
