Dynamic order allocation in E-commerce supply network

Abstract

The rising popularity of E-commerce caused huge demand surges for the retailers to effectively fulfil orders. With the growing competition and supply disruptions in E-commerce, retailers are concerned about high fulfilment costs and low gross margins, prompting the need for flexibilities in the supply chain networks to mitigate against disruptions. In this paper, we aim to design and analyse several supply chain order fulfilment networks such as static, static with lateral transhipments, dynamic and dynamic with order spitting order fulfilment models. The supply chain simulation models will be based on real business cases to derive analysis insights and provide the optimal solution. The analysis revealed that dynamic models offer the highest cost savings, particularly when inventory levels are high. For situations with low inventory levels, the static model with transhipments is recommended despite the high variation in demand, albeit with longer lead times is required. In contrast, when the lead time is short, the dynamic model with order splitting provides the maximum flexibility in the transportation network despite the high variability in demand, inventory and lead time while providing the highest order fulfilment rates with low transportation costs if the penalty costs were kept low. In the event where the customers does not welcome partial orders or has high penalty costs with short lead times, the dynamic order fulfilment model can be implemented with scenarios with low demand variability. Higher flexibilities must be incorporated into the supply chain network to provide higher service levels and lower transportation costs.