MAKING BETTER FULFILLMENT DECISIONS ON THE FLY IN AN ONLINE RETAIL ENVIRONMENT
Relative to brick-and-mortar retailers, online retailers (or e-tailers) have the potential to offer more options to their customers, with respect to both inventory as well as service times. To do this entails the management of a distribution network with more decision options than a traditional retailer. The e-tailer, not the customer, decides from whence items will ship, by what shipping method, and how or whether multiple-item orders will be broken up into multiple shipments. Furthermore, e-tailers often carry many low-volume items, and do not stock each item at every warehouse location. One question facing e-tailers is this: what is the best way to fulfill each customer’s order to minimize average outbound shipping cost? We partner with an e-tailer to examine this question. We develop a heuristic that makes fulfillment decisions by minimizing the immediate outbound shipping cost plus an estimate of future expected outbound shipping costs. These estimates are derived from the dual values of a transportation problem. In our experiments, we capture 40% of the opportunity gap assuming clairvoyance, leading to reductions in outbound shipping costs on the order of 1%. We also characterize the type of SKU’s that benefit most from the heuristic.
This is joint work with Jason Acimovic and anonymous industrial partners.
Professor Stephen Graves
Stephen C. Graves is the Abraham J. Siegel Professor of Management Science at MIT.
Graves received his A.B. and M.B.A. from Dartmouth College and completed his Ph.D. in operations research from the University of Rochester. Since 1977 he has been a faculty member at the MIT Sloan School of Management. He has served as a deputy dean at the MIT Sloan School, 1990 – 1993; the co-director of the MIT Leaders for Manufacturing (LFM) Program (1989- 1990 and 1994 – 2001) and the System Design and Management (SDM) Program (1999 – 2001); and as the Interim Director of the MIT Engineering Systems Division (2012 – 2013). He served a two-year term as the Chair of the MIT Faculty, 2001 – 2003. He has joint faculty appointments with both the Mechanical Engineering Department and the Engineering Systems Division at MIT. He is a Faculty Fellow of the Singapore-MIT Alliance. He teaches classes in supply chain planning and design, and in mathematical modeling and analysis, as applied to manufacturing, supply chains and distribution systems. His primary research interests are in the design and planning of manufacturing systems and supply chains; recent efforts have considered supply-chain optimization, the evaluation of manufacturing flexibility and various tactical issues arising in e-retailing. Graves has served on several editorial boards for journals in operations management and management science, and is currently the Editor-in-Chief of Manufacturing & Services Operations Management, the INFORMS Journal for Operations Management. He has conducted industry-based research projects with numerous companies, including AT&T, IBM, Monsanto, Eastman Kodak, Amazon.com, Intel, General Motors, Boeing, Teradyne and Staples. He has been selected as an INFORMS Fellow, a MSOM Fellow and a POMS Fellow.