Assortment Allocation To Distribution Centers For Minimizing Split Orders: Model And Optimization Strategy

Order splitting refers to a retailing order is delivered in multiple shipments, or in different time, which adds to fulfillment cost. The effect is much more significant while a retailer holds a large number of SKUs. In this paper, SKU allocation policy to multiple DCs in online retailing is explored to minimize amount of split orders.Firstly, a literature review of main focus of traditional operation research in warehouse is given, which can support the research of assortment allocation and problem of order splitting. Then, three main factors leading to split orders are given: split due to SKU, split due to unit and special splitting. Under the circumstance where overall shortage is not considered, an integer formulation including the first two factors is given, which can be proved as NP-hard. With analysis of sales data of a domestic e-retailer, a new effective heuristic, Loop Algorithm, is designed based on Bestsellers Heuristic. To test the efficiency of algorithms, a numeric test is given using simulated orders of different scales. The algorithms are evaluated in two aspects: amount of split orders and workload balance of distribution centers. The result shows that Loop Algorithm performs the best in both two aspects. Finally, a sensitive analysis is presented to explore how the parameters affect the outcome. The result indicates that e-retailer can reduce or even eliminate split orders due to unit by increasing inventory level. Additionally, when one distribution center holds relatively few SKUs, order splitting due to SKU plays a major part while order splitting due to unit becomes significant when each distribution center hold more SKUs. Finally, we summarized our work and point our further research direction.