Stochastic modeling of integrated order fulfillment processes with delivery time promise: Order picking, batching, and last-mile delivery

Abstract

To guarantee high customer service and short and accurate lead times, many e-commerce retailers have started to home deliver their customer orders within a few hours or even minutes, also known as quick-commerce order fulfillment. Quick-commerce order fulfillment consists of three main processes: order picking in the warehouse, order batching for delivery, and last-mile delivery. The ultimate delivery performance depends on managing all three processes, which are highly stochastic, and interdependent. We capture this stochasticity and interdependency in an integrated analytical framework and derive approximate analytical expressions for the mean and variance of the total order fulfillment time. We validate the analytical expressions with both in-house detailed process simulations and external-party output measures. We then analyze the delivery cost-service quality trade-offs using an optimization model that minimizes the expected order fulfillment cost with a delivery probability (DP) constraint, focusing on meeting delivery time deadlines. The optimization model determines the number of pickers, the optimal delivery batch size, and the number of vehicles required to deliver the customer orders. Achieving a high delivery reliability comes at a cost. In comparison to the model with DP constraints, we observe that the expected order fulfillment cost averaged over all data parameter settings obtained from the model without DP constraints is 8.9% lower; however, the mean and standard deviation of order fulfillment time increase by 44.1% and 18.6%, respectively, which results in low delivery reliability. We further demonstrate that an integrated analysis of the order fulfillment process is essential to set reliable fulfillment due times.