Managing inventories in multi-echelon on-line retail fulfillment system with different response lead time demands

Abstract

When designing and operating an order fulfillment system for an on-line retailer, many factors must be taken into account. In this paper, we study a multi-echlon on-line fulfillment system with different response lead time demands. We present a delayed allocation system, which is called the primary warehouse system (PWS). In this system, inventories to satisfy different response lead time demands are managed differently. Since there are many millions of items managed in the system, determining stock levels quickly is a necessity. The focus of this paper is on planning inventory levels. Specifically, our goals are to describe a model for setting stock levels for each item, to present a computationally tractable method for determining their values, and to provide numerical results that illustrate the applications of the model to the on-line retailer's environment.