Dual Channel Warehouse Sizing Under a Piecewise Linear Warehousing Cost Structure

Abstract

Since the recent growth of e-commerce, manufacturers are adapting traditional warehouses to dual-channel warehouses, which has a unique structure that is divided into two zones: the first one dedicated to fulfill online channel orders and the second dedicated to load and fulfill orders from the traditional retail channel. However, adding a new sales channel creates new challenges in terms of inventory management due to differences in order size and fulfillment times. In addition to the large uncertainty of demand in the short and long term, it makes planning for storage capacity and allocation complex. Shorter delivery times and the trend of urbanization have led to dual-channel warehouses often near cities where access to land is difficult and expensive. Manufacturers must find ways to maximize capacity utilization at their specific facilities or new facilities. The objective of this research is to establish an integrated inventory management and sizing model for the dual-channel warehouse, where the total size of the warehouse is determined, as well as the inventory policy for each of the channels. A linear storage cost structure by parts is assumed, a difference from typical economical lot size models, the storage cost structure examined in this case is not the simple unit rate type but rather a more realistic function of the warehouse space to be acquired. A heuristic method for solving the problem was formulated and validated using numerical examples according to the problem.