Since 2000, e-commerce market has grown tremendously due to advancements in information and communication technology (ICT). In this regard, it is necessary for on-line retailers to deliver their products quickly and accurately to on-line shopping cust...
Since 2000, e-commerce market has grown tremendously due to advancements in information and communication technology (ICT). In this regard, it is necessary for on-line retailers to deliver their products quickly and accurately to on-line shopping customers distributed over the large region. Some companies deliver products via their own logistics system while other companies outsource their distribution function to the third-party logistics service providers.
Traditional off-line based retailers have also started to enter the on-line shopping market with the advantage of well established distribution network of distribution centers and retail stores. In particular, hyper markets provide same-day delivery service to customers by establishing Pick-and-Pack (PP) centers within the existing off-line stores. In response to on-line shopping orders, each PP center pick prodcuts from the off-line store inventory and delivers to customers within the designated service area several times a day.
However, a major drawback of PP center is that both on-line and off-line orders are collectively fulfilled with the off-line store inventory. This is problematic since the system can report the status of products as "in-stock" even though they are already sold out by visiting customers. Moreover, it would be difficult to accommodate the rapid growth of on-line shopping demand due to the limit capacity of PP centers.
To address theses issues, retailers have adopted on-line fulfillment centers (FC) that are dedicated to fulfill on-line customer orders with the capability of inventory holding and direct customer delivery. However, constructing and operating FCs require substantial fixed costs in the first place. Therefore, it is necessary for retailers to complementarily use PP centers along with FCs. This raises the problem of selecting the location of FCs and determining their service areas while utilizing existing PP centers in the distribution networks.
The main objective is this thesis is to suggest facility location and inventory allocation strategies for off-line based retailers providing on-line same-day delivery services. A non-linear inventory-location model is developed to determine locations and service areas of PP centers and FCs as well as their inventory allocation under various demand and service level scenarios.
The model is applied to Seoul Metro Area with actual on-line customer order data from a case company. Transport costs are calculated based on the actual GIS road network data. Since the model was nonlinear, Lingo 13.0 was used to find solutions, which in turn, were mapped in GIS to analyze major indicators such as total costs and service level. One of the main findings is that limits on distance coverage for same-day delivery service playes critical role in FC locations. It was also found that retailers can improve inventory assignment and order-fulfillment rate by complementarily using FCs and PP centers in their distribution networks.