Implications of Online-Buying to Store-Pickup (O2S) for End-to-End Supply Chain Strategy

Abstract

A growing body of literature examines the demand effects of the increasingly popular retailing strategies of integrating digital sales channels with brick-and-mortar stores, allowing customers to buy goods online and pick them up in a store (termed BOPS) or by the store’s curbside. Typically, however, implications of such strategies are explored for the retail channel alone while ignoring the sourcing strategy, which affects a key driver of their influence: product availability. We study such online-to-store (O2S) strategies using an analytical model of the end-to-end supply chain for two cases: a brick-and-mortar retailer expanding its market via O2S, and a retailer integrating its independent brick-and-mortar and online channels via O2S. We derive rational expectations equilibrium product availability, involving sourcing strategy and consumer choice, in pre and post-O2S cases to provide three insights about the interdependence of O2S and sourcing strategies. First, market expansion via O2S is moderated by the retailer’s sourcing strategy: it is achieved only if the equilibrium pre-O2S product availability is below a certain threshold. Second, introduction of an O2S strategy can affect the feasibility of retailer’s suppliers: it can render an existing supplier economically infeasible and make a previously-infeasible supplier feasible. Third, cost-efficient processing of goods returned by the retailer’s O2S and online consumers is necessary not just for retail profitability but also to ensure supplier feasibility. For practice, this highlights the need to plan the retail and sourcing strategies in a multi-channel environment jointly as interdependent components of an end-to-end supply chain. Managers are thus forewarned of pitfalls from separating the decision-making in retailing and sourcing strategies.