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Benefits of Reevaluating Real-Time Order Fulfillment Decisions

Ping Josephine Xu (), Russell Allgor () and Stephen C. Graves ()
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Ping Josephine Xu:, Seattle, Washington 98104
Russell Allgor:, Seattle, Washington 98104
Stephen C. Graves: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Manufacturing & Service Operations Management, 2009, vol. 11, issue 2, 340-355

Abstract: When a customer orders online, an online retailer assigns the order to one or more of its warehouses and/or drop-shippers to minimize procurement and transportation costs based on the available current information. However, this assignment is necessarily myopic because it cannot account for any subsequent customer orders or future inventory replenishment. We examine the benefits of periodically reevaluating these real-time assignments. We construct near-optimal heuristics for the reassignment for a large set of customer orders to minimize the total number of shipments. Finally, we present evidence of significant saving opportunities by testing the heuristics on order data from a major online retailer.

Keywords: online retailing; online order fulfillment; local search heuristics (search for similar items in EconPapers)
Date: 2009
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Handle: RePEc:inm:ormsom:v:11:y:2009:i:2:p:340-355