E-commerce supply chain network design using on-demand warehousing system under uncertainty

Abstract

During the COVID-19 pandemic, e-commerce retailers have had trouble satisfying the growing demand because of limited warehouse capacity constraints. Fortunately, an on-demand warehousing system has emerged as a new alternative to mitigate warehouse capacity issues. In recent years, several studies have focused on the supply chain problem considering on-demand warehousing. However, there is no study that deals simultaneously with inherent uncertainties and the property of commitment, which is the main advantage of on-demand warehousing. To fill these research gaps, this paper presents an e-commerce supply chain network design problem considering an on-demand warehousing and decisions for commitment periods. We propose the two-stage stochastic programming model that captures the inherent uncertainties to formulate the presented problem. We solve the proposed model utilizing sample average approximation combined with the Benders decomposition algorithm. Of particular note, we develop a method to generate effective initial cuts for improving the convergence speed of the Benders decomposition algorithm. Computational results show that the developed method could find an effective feasible solution within a reasonable computational time for problems of practical size. Furthermore, we show the significant cost-saving effects, based on experiment results, that occur when an on-demand warehousing system is used for designing supply chain networks.