Multi-item Online Order Fulfillment in a Two-Layer Network

The global e-commerce boom has driven rapid expansion of fulfillment infrastructure, with e-retailers building more warehouses to offer faster deliveries. However, fulfillment costs have surged over the past decade. This paper addresses the problem of minimizing these costs, where an e-retailer must decide in real time which warehouse(s) will fulfill each order, considering inventory constraints. Orders can be split among warehouses at an additional cost. We focus on a regional distribution center (RDC)–front distribution center (FDC) distribution network used by major e-retailers, which consists of larger RDCs and smaller FDCs. We analyze the performance of a simple myopic policy that selects the least expensive fulfillment option for each order without considering future impacts. We provide theoretical bounds on the performance ratio of the myopic policy compared with an optimal clairvoyant policy and demonstrate the strengths of the myopic policy within this two-layer network.

Supplemental Material: All supplemental materials, including the code, data, and files required to reproduce the results, are available at https://doi.org/10.1287/opre.2022.0100.