Fulfillment Flexibility Strategy for Dual-channel Retail Networks

Abstract

Flexibility design has been widely adopted in practice as a competitive strategy to respond effectively to uncertainties. In this paper, we analyze the fulfillment flexibility for dual-channel retail networks, in which the firms should fulfill both online demands from retailing platforms and in-store offline demands. In particular, by setting the order of fulfillment, we find that a dual-channel retail network can be equivalently transformed to an online retail network with stochastic inventory and demand. By implementing a copositive programming, we obtain an asymptotic robust lower bound for the ratio of expected sales to fully flexible expected sales under a K-chain design. This bound only depends on the partial moment information and support set of demands, rather than the complete demand distribution information. Interestingly, we derive the optimality of K-chain in symmetric balanced networks and the performance of K-chain under different distributions is robust. In addition, numerical experiments are conducted to further deliver some insights for practitioners. The uncertainties of in-store demand or inventory will reduce the expected sales while both fulfillment flexibility and safety inventory can be used to enhance the performance of a retail system. Finally, we find that the correlation coefficient between in-store demand and online demand will affect the decision-making significantly.