Integrative Strategies for Omnichannel Order Fulfillment With Risk Aversion

Abstract

Online orders are traditionally shipped from online logistics centers (SFO). Recently, omnichannel retailers have integrated the inventory of online logistics centers and physical stores to implement ship-from-store (SFS) and ship-to-store (STS) strategies. This article develops an analytical model to explore the integrative strategies of SFO, SFS, and STS for an omnichannel retailer. Taking the omnichannel retailer's risk-averse behavior into account, the operational strategies for different integrative strategies are investigated. The results show that the inventory of a specific integrative strategy is optimized if the logistics cost of this strategy is sufficiently small. When the store operational cost is low, Strategy STS outperforms Strategies SFO and SFS. At this point, Strategy SFS outperforms Strategy SFO if the online logistics center's inventory cost is high. Moreover, the optimal inventory volumes and profits in the risk-averse case are lower than those in the risk-neutral case. Interestingly, the omnichannel retailer should adopt Strategy STS if it is risk-averse, while Strategy SFS should be implemented if its risk appetite is high. Additionally, a hybrid strategy (SFO+SFS, SFO+STS, SFS+STS) could increase the inventory volumes if the logistics cost is relatively low. In this regard, the omnichannel retailer may benefit from starting additional order fulfillment modes.