Robust Decisions of Omnichannel Retail Operations for an Overconfident Manufacturer Considering Short Life-Cycle Products and Cap-and-Offset Policy

Abstract

With the introduction of buy-online-and-pickup-in-store (BOPS) services, it has been unclear whether physical stores should have their own online channels when overconfident behavior, carbon abatement, and incomplete demand information are considered in the manufacturer’s operations. This practical issue motivates us to investigate an overconfident manufacturer under a cap-and-offset policy who sells products through the omnichannel retail model. Three types of customers in this model are classified, and only the expectation and variance of stochastic demand are captured. The operational stages related to production, inventory, and transportation contribute to carbon emissions. We first consider the self-operated online channel and the independent channel and develop two corresponding distributionally robust newsvendor models. The analytic expression of the optimal robust manufacturing quantity for each model is solved. We compare the operational efficacy of an overconfident manufacturer in the self-operated online system with that in the independent system. The results show that the net profit from selling each unit item to online customers is a significant factor in comparing the profit and carbon emissions of overconfident manufacturers in the two omnichannel retail systems. Numerical experiments are conducted to complement the theoretical models and examine the effects of several major parameters on the two systems in the omnichannel retail model. This article provides the manufacturer with valuable knowledge of the robust manufacturing strategy and integration between the online and offline channels under the omnichannel retail model.