Total Hockey Optimizes Omnichannel Facility Locations

Mitchell A. Millstein () and James F. Campbell ()
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Mitchell A. Millstein: College of Business Administration, University of Missouri St. Louis, St. Louis, Missouri 63121
James F. Campbell: College of Business Administration, University of Missouri St. Louis, St. Louis, Missouri 63121

Interfaces, 2018, vol. 48, issue 4, 340-356

Abstract: Omnichannel distribution, which blends brick-and-mortar retailing and e-commerce, is a key challenge for today’s supply chains. In this paper, we report on a study to design an omnichannel distribution system for Total Hockey, a growing U.S. sporting goods retailer in a competitive environment. Management strongly believes that e-commerce success will depend on high service levels characterized by one- or two-day delivery and initially thought that a new omnichannel warehouse located on the East Coast could support its expansion plans. To study the situation, we developed a profit-maximizing optimization model for locating omnichannel warehouses that supports both e-commerce and store shipments. The model uses estimates of e-commerce demand by metropolitan statistical area (MSA) across the United States, while incorporating management’s sales expectations regarding the value of high service levels, e-commerce sales lost to competitors’ stores, and reverse cannibalism from Total Hockey’s own retail stores. Multiple warehouse sizes allow modeling of nonlinear inventory costs. The facility-location optimization model allows exploration of multiple solutions and an assessment of the impact of higher service levels. The results of the study were contrary to management expectations and suggested a significant redesign of the distribution system. We report results for several analyses, implementation details, and managerial insights for omnichannel distribution.

Keywords: omnichannel; e-commerce; facility-location modeling; integer programming; linear programming; OR/MS implementation: applications (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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