Joint Product Framing (Display, Ranking, Pricing) and Order Fulfillment Under the Multinomial Logit Model for E-Commerce Retailers

Yanzhe (Murray) Lei (), Stefanus Jasin (), Joline Uichanco () and Andrew Vakhutinsky ()
Additional contact information
Yanzhe (Murray) Lei: Stephen J.R. Smith School of Business, Queen’s University, Kingston, Ontario K7L 3N6, Canada
Stefanus Jasin: Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109
Joline Uichanco: Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109
Andrew Vakhutinsky: Oracle Labs, Burlington, Massachusetts 01803

Manufacturing & Service Operations Management, 2022, vol. 24, issue 3, 1529-1546

Abstract: Problem definition : We study a joint product framing and order fulfillment problem with both inventory and cardinality constraints faced by an e-commerce retailer. There is a finite selling horizon and no replenishment opportunity. In each period, the retailer needs to decide how to “frame” (i.e., display, rank, price) each product on his or her website as well as how to fulfill a new demand. Academic/practical relevance : E-commerce retail is known to suffer from thin profit margins. Using the data from a major U.S. retailer, we show that jointly planning product framing and order fulfillment can have a significant impact on online retailers’ profitability. This is a technically challenging problem as it involves both inventory and cardinality constraints. In this paper, we make progress toward resolving this challenge. Methodology : We use techniques such as randomized algorithms and graph-based algorithms to provide a tractable solution heuristic that we analyze through asymptotic analysis. Results : Our proposed randomized heuristic policy is based on the solution of a deterministic approximation to the stochastic control problem. The key challenge is in constructing a randomization scheme that is easy to implement and that guarantees the resulting policy is asymptotically optimal. We propose a novel two-step randomization scheme based on the idea of matrix decomposition and a rescaling argument. Managerial implications : Our numerical tests show that the proposed policy is very close to optimal, can be applied to large-scale problems in practice, and highlights the value of jointly optimizing product framing and order fulfillment decisions. When inventory across the network is imbalanced, the widespread practice of planning product framing without considering its impact on fulfillment can result in high shipping costs, regardless of the fulfillment policy used. Our proposed policy significantly reduces shipping costs by using product framing to manage demand so that it occurs close to the location of the inventory.

Keywords: product framing; order fulfillment; e-commerce retail; asymptotic analysis (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/msom.2021.1012 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:24:y:2022:i:3:p:1529-1546

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().