Optimization of OmniChannel Distribution Network Using Micro Fulfillment Center Under Demand Uncertainty

• Published in: IEEE access Vol. 11; pp. 107496 - 107510
• Main Authors: Lee, Taehoon, Han, So Rim, Song, Byung Duk
• Format: Journal Article
• Language: English
• Published: Piscataway IEEE 2023; The Institute of Electrical and Electronics Engineers, Inc. (IEEE)
• Subjects: City centres; Commerce; Costs; Customer services; Delivery services; Demand; demand uncertainty; Distribution networks; Logistics; MFC; micro fulfillment center; Numerical analysis; Numerical models; omnichannel; Operating costs; Optimization; Optimization models; Perishable goods; Quick commerce; Retail stores; Stochastic processes; stochastic programming; Uncertainty; urban logistics
• ISSN: 2169-3536; 2169-3536
• DOI: 10.1109/ACCESS.2023.3317690

Quick commerce has recently become the most important issue in the logistics industry due to intensifying competition for a faster delivery. A fulfillment service that integrates various logistics processes has emerged to conduct delivery service as quickly as possible. With a need for facilities that can serve a fulfillment service near the customer, a Micro Fulfillment Center (MFC) is suggested as a solution. MFC refers to a small fulfillment center located in the city center and functions as an advanced base for quick commerce services. However, quick commerce services, including the operation of MFC, are suffering from high costs and operational inefficiency. In this situation, the integration of online and offline distribution networks in the omnichannel logistics system is showing a new possibility for Quick commerce service. for instance, the waste cost resulting from the failures of demand forecasting can be alleviated by the integration of both networks, especially for perishable goods. Accordingly, this study aims to determine the optimal MFC location for Quick commerce service to serve an online order in an omnichannel system that deals with perishable goods, and to identify operational benefits that can be led by the connection between MFCs and Retail stores. This study has introduced a two-stage stochastic optimization model to deal with demand uncertainty. we developed two optimization models to explain the integration between MFCs and offline stores. In addition, we conduct a numerical analysis based on real-world data including actual retail stores and modifications of online demand to verify the models we introduce. The case study is executed in Gangdong-gu, Songpa-gu in Seoul, Korea. Rep of. The results say that the connection of the different channels can be significantly beneficial in operating costs.