Unstructured Coordination: The Effect of Making Short-Term Adjustments in a Warehouse Network

Abstract

This research studies unstructured coordination in a network of warehouses that serve online retailers. Unstructured coordination occurs when warehouse agents make autonomous coordination decisions using their local market knowledge to coordinate with other warehouses. Coordination in this context involves transshipments between warehouses to re-position inventory in the network. Warehouses can engage in scale coordination where they do a lot of coordination with a few particular warehouses or scope coordination where they coordinate with a lot of different warehouses. The relative benefits of these strategies depend on the level of uncertainty that a warehouse faces, specifically demand uncertainty and product variety. Econometric analysis shows that scale coordination improves warehouse inventory performance, but scope coordination reduces performance. Demand uncertainty and product variety amplify both effects of scale and scope coordination on warehouse inventory performance. A post-hoc analysis examines the effect of unstructured coordination on the inventory performance of the overall warehouse network. The results show that network density does not improve overall network inventory performance, but network centralization does. That is, merely engaging in unstructured coordination does not improve overall network performance, but the underlying structure of how warehouses coordinate with one another improves network inventory performance.