Tuesday, October 21, 2014

Academic paper on ecommerce fulfillment

My colleague Stefanus Jasin and I have just posted our academic paper on algorithms for fulfilling ecommerce orders. Full paper is available on SSRN. Comments welcome! The paper is titled "LP-Based Artificial Dependency for Probabilistic Etail Order Fulfillment". Below is the abstract:

We consider an online multi-item retailer with multiple fulfillment facilities and finite inventory, with the objective of minimizing the expected shipping cost of fulfilling customer orders over a finite horizon. We approximate the stochastic dynamic programming formulation of the problem with an equivalent deterministic linear program, which we use to develop a probabilistic fulfillment heuristic that is provably optimal in the asymptotic sense. This first heuristic, however, relies on solving an LP that is exponential in the size of the input. Therefore, we subsequently provide another heuristic which solves an LP that is polynomial in the size of the input, and prove an upper bound on its asymptotic competitive ratio. This heuristic works by modifying the LP solution with artificial dependencies, with the resulting fractional variables used to probabilistically fulfill orders. A hardness result shows that asymptotically optimal policies that are computationally efficient cannot exist. Finally, we conduct numerical experiments that show that our heuristic's performance is very close to optimal for a range of parameters.

Friday, October 17, 2014

Meijer's ecommerce mystery

With over $16B in sales, Meijer is one of the largest big-box retailers in the country. However, their ecommerce operations at present are a little perplexing. On October 6, 2014, as part of this overall research project, I first discovered that Meijer.com was undergoing renovations. The webpage explaining the process stated that the website would be rebooted this fall. On October 12, 2014, when I returned to the page to do further research, it was stated that “later this year” the renovations to the website would be complete (New Meijer.com). It is possible that the website may not be available for a few more weeks. The webpage states that there would be new products and services available online, and new digital features that would make shopping at Meijer.com easier. Meijer gives customers the option to receive updates about the progress of their renovations if they follow or subscribe to one of the Meijer accounts on various social websites, such as Facebook and Twitter. Mperks members can also receive updates. The Meijer website is really the only concrete source of information about these changes. The shut down of Meijer’s online retail, has surprisingly not been covered by any major news outlets online.

Since no news articles are available, complaints about Meijer’s lack of online shopping are the only information available about the situation, other than Meijer’s webpage. These seem to suggest a certain level of dissatisfaction with the operations of Meijer.com. Perhaps Meijer is revamping its online operations because the earlier operations were not working all that well. Meijer is losing out on a great deal of business by shutting down their online shopping.

For many people, there is not a Meijer location close to them considering that the stores are mainly in the Midwest. Closing the online retail, shuts out the rest of the United States from being possible consumers. Also, online shopping is a huge business leading up to the holidays. If the website is not up and running by Thanksgiving at the latest, Meijer is going to miss out on a huge amount of business, something presumably the management of Meijer is well aware of. Perhaps the fact that Meijer is privately held is the reason press coverage on this is limited. We will update this when we have more to report.

[-- Research by Madeline Stroin]

Thursday, October 9, 2014

Amazon converges to Walmart: opens physical store

This was inevitable: Amazon will open its first physical store in New York in the next few months.  The article goes on to cite all the reasons one would expect: the ability to offer buy-online-pickup-in-store options (which are cheaper, quicker, and sometimes easier than home delivery), the ability to quickly return stuff (something this blog has noted as an advantage for traditional brick-and-mortar retailers), and of course for showrooming a selection of items. This will also allow Amazon to take more control over their delivery systems, relying less on third-party shippers.

I would expect Amazon's network of stores to increase very soon, despite the WSJ's caution that this may be unsuccessful and be reversed. What I would be interested in seeing is whether or not Amazon will allow customers to purchase stuff directly from the stores, just like any other brick-and-mortar retailer. If so, we would try have convergence between Amazon and Walmart!

Friday, October 3, 2014

Walmart opens drive-through pick-up, orders ready in two hours

Earlier this week, Walmart opened their first location where customers can order online, and pick up their items via a drive-through location in as little as two hours (as well as schedule for pickup many weeks in advance). See here for a nice little video about it. Cool stuff! This is exactly the kind of system that will enable Walmart (as well as other bricks-and-clicks retailers) compete aggressively with Amazon. For queuing theory enthusiasts, note also the fact that they've built multiple bays to serve customer orders---this kind of a system is going to be subject to a lot of variability in the service time of individual orders, so multiple bays are necessary to prevent large queues from forming.

Tuesday, September 30, 2014

Seasonal employment in retail in omnichannel context

One of the things this blog has wondered about is how the shift to ecommerce impacts retail employment. At first, one would have thought that the net result is a decrease in employment, because labor at distribution or fulfillment centers can fulfill many more orders per hour than retail salespeople on the shop floor. But now, more and more retailers are fulfilling from stores, where labor efficiency is lower than in FCs and DCs. Case in point, about Macy's (from Internet Retailer):
The department store chain announced today plans to hire 86,000 seasonal workers for the holiday season, a 3.6% increase from 83,000 last year. That includes hiring 10,000 to work in online fulfillment centers, versus 7,000 last year, a spokesman says. Plus, for the first time Macy’s is hiring 3,000 temporary employees for its stores to fulfill orders placed online for store pickup, ship online orders from stores and handle in-store returns of web orders.
For context, Macy's corporate website states that their total employment is approximately 172,500. Many points worth noting here. First, the seasonal employment is approximately 50% of their total employment! Definitely a surprise to me; most likely another of those things that betrays my ignorance. Second, the paragraph above seems to demonstrate that the shift to ecommerce or omnichannel retail is actually increasing the need for labor, with a specific additional need for extra labor at stores to fulfill ecommerce orders. Of course, this is just one data point, and not a macro-level study of the total effect on employment.

Wednesday, September 17, 2014

In-vehicle returns and exchanges of ecommerce purchases

We love the convenience of our vehicles. We love the convenience of ecommerce. But we want the ability to return and exchange stuff, if after we get our hands on it we find that it's not exactly what we're looking for. Put these together, and it becomes very clear that there is potential for in-vehicle returns and exchanges. From Internet Retailer: Sears is adding this feature.

You have to use their app, which is actually a good thing because it links to your order history, payment history, and also their product catalog, so that the process is much more efficient. Sears is promising a 5-minute turnaround on this, from the moment you arrive at the designated parking spot for this service. That 5-minute turnaround to me appears to be the biggest risk factor: I'm not sure Sears (or anyone) can guarantee a 5-minute turnaround under all conditions. Note however that the 5 minutes start ticking only after you've parked, so if there is a queue for this then that waiting time doesn't get counted. For now I think their volumes will be low enough that they won't have trouble meeting the 5 minute deadline (while still getting marketing points for having this feature), but over the long run we'll have to see how this evolves.

On a broader note, this is yet another way in which brick-and-mortar stores can creatively leverage their physical assets to fight back against Amazon. Particularly for home-improvement stuff like what Sears sells, I would be very appreciative of a feature that makes it so easy for me to swap the wrong part for a right one, compared to shipping to Amazon and back over a few days.

Saturday, September 6, 2014

US Postal Service engages in a big way in eCommerce

The US Postal Service is engaged in a fascinating pivot and entering eCommerce in a big way. USPS has been struggling for many years, with the decline in snail mail given the rise in email. (There are additional issues such as high legacy costs and all that, but we won't go there in this post.) However, it has a massive infrastructure of post offices, sortation centers, vehicles, carrier agreements, manpower, etc. It is natural that USPS should shift some of its attention to compete aggressively in the eCommerce market, and leverage those assets which are now under-utilized.

Apropos that: the USPS is now testing delivering groceries in San Francisco for Amazon (covered here in the Wall Street Journal). Deliveries will be made between 3 am and 7 am, when their vehicles are currently unutilized and traffic is easy. Sounds strange to some; in the words of one of my disbelieving colleagues: "you mean my mailman is now going to bring me apples?" To me it seems like a natural fit.

Additionally, USPS has announced a massive price cut to compete aggressively with FedEx and UPS. Of course those two are not too happy about this; see this article, also on WSJ. A fascinating side note: FedEx and UPS pay large fines for illegal parking in cities to meet their delivery deadlines and treat that as a normal cost of business, but UPS is immune from such fines and can park illegally at will (from BusinessWeek)!

This pivot of USPS should make for a great business school case study. Any takers?