Multi-echelon fulfillment warehouse rent and production allocation for online direct selling

Abstract

We consider the joint decision problem of renting three types of warehouses and allocating products among the warehouses in an E-commerce supply network, which are supplier, regional, and local warehouses. The research is motivated by a real-world emerging problem in an open warehouse platform (OWP) environment. We focus on the distinct characteristics of a network using an OWP and its underlying cost drivers and propose a nonlinear mixed integer programming model that reflects the interdependencies among inbound transportation, warehousing, delivery, and return, as well as time-sensitive demand. Our nonlinear model with multiple products is converted into a linear form so that it can be solved by a solver. The application of the model to a real-world case of a leading E-commerce company in China demonstrates a significant potential to increase profit, and our sensitivity analysis provides insights for operations managers into warehouse rent and inventory decisions.