Order fulfillment: warehouse and inventory models

Consumers are increasingly buying their products online. In line with this trend, many online retailers have emerged; either operating only online or employing brick-and-mortar stores as well. Order fulfillment is the process of retailers to supply consumers with products ordered. Many challenges arise when considering the logistics of online order fulfillment. In particular, the cost of warehouse operations in online order fulfillment is substantial. Therefore, there is large potential in improving the efficiency of warehouse processes. Order picking is the most time-intensive part of order fulfillment. Designing efficient order-picking processes is essential to be competitive online. Additionally, selling products both online and offline requires careful management of inventories to make sure customer demands for products can be met at all locations at all times.

In this thesis, we study warehouse-management and inventory-management models related to online retail. We study the length of the routes order pickers travel in warehouses for a number of different routing strategies. We minimize route lengths by determining storage locations for products, based on their turnover rates. We derive analytical optimality criteria by formulating dynamic programs. These criteria are used in methods that determine storage locations for products to improve order-picking efficiency. Furthermore, we study the impact of both lost sales and product returns on inventory processes of online retailers. Optimal policies are calculated and serve as a benchmark for near-optimal heuristics that can effectively be implemented in practice.