Appreciating how your bread is buttered: improving online order allocation for cross-channel retailers

Abstract

Existing research has considered how pure online retailers can optimise the allocation of fulfilment responsibilities for online sales. However, the fulfilment policies used by pure online retailers may be suboptimal for their dual-channel counterparts. This paper considers online order allocation policies for cross-channel retail/e-tail organisations which utilise buy online, ship from store (BOSS) fulfilment. Specifically, we develop and evaluate a policy for allocating fulfilment responsibilities for a set of multiproduct online orders across a retailer’s store locations when the retailer also faces in-store demand for the same products. Further, our model incorporates carrier rate schedules into the allocation decision and adjusts allocations based on current and forecasted inventory positions at the stores. As such, the model determines fulfilment responsibilities by balancing quantity discounted carrier shipment costs, fixed costs of handling/packing orders, and expected inventory positions. Computational results highlight the extent to which our policy outperforms single-channel policies without in-store inventory considerations. We find that undertaking BOSS without tailoring online order allocation to the cross-channel setting accommodates online fulfilment at the expense of in-store performance. Conversely, consideration of in-store inventories in the order allocation decision enables a cross-channel retailer utilising BOSS to simultaneously improve service levels and reduce inventory.