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Optimal inventory and dynamic admission policies for a retailer of seasonal products with affiliate programs and drop‐shipping

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  • Yongbo Xiao
  • Frank Y. Chen
  • Jian Chen

Abstract

This article investigates the optimal inventory and admission policies for a “Clicks‐and‐Bricks” retailer of seasonal products that, in addition to selling through its own physical and online stores, also sells through third‐party websites by means of affiliate programs. Through postings on partners' webpages, an affiliate program allows a retailer to attract customers who would otherwise be missed. However, this retailer needs to pay a commission for each sale that originates from the website operators participating in the program. The retailer may also refer online orders to other sources (such as distributors and manufacturers) for fulfillment through a drop‐shipping agreement and thus earns commissions. This would be an option when, for example, the inventories at the physical stores were running low. Therefore, during the selling horizon, the retailer needs to dynamically control the opening/closing of affiliate programs and decide on the fulfillment option for online orders. On the basis of a discrete‐time dynamic programming model, the optimal admission policy of the retailer is investigated in this paper, and the structural properties of the revenue function are characterized. Numerical examples are given to show the revenue impact of optimal admission control. The optimal initial stocking decisions at the physical stores are also studied. © 2009 Wiley Periodicals, Inc. Naval Research Logistics 2009

Suggested Citation

  • Yongbo Xiao & Frank Y. Chen & Jian Chen, 2009. "Optimal inventory and dynamic admission policies for a retailer of seasonal products with affiliate programs and drop‐shipping," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(4), pages 300-317, June.
    • Handle: RePEc:wly:navres:v:56:y:2009:i:4:p:300-317
    DOI: 10.1002/nav.20346
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    References listed on IDEAS

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    1. William L. Cooper, 2002. "Asymptotic Behavior of an Allocation Policy for Revenue Management," Operations Research, INFORMS, vol. 50(4), pages 720-727, August.
    2. Taylor Randall & Serguei Netessine & Nils Rudi, 2006. "An Empirical Examination of the Decision to Invest in Fulfillment Capabilities: A Study of Internet Retailers," Management Science, INFORMS, vol. 52(4), pages 567-580, April.
    3. Jeffrey I. McGill & Garrett J. van Ryzin, 1999. "Revenue Management: Research Overview and Prospects," Transportation Science, INFORMS, vol. 33(2), pages 233-256, May.
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    Cited by:

    1. Yiting Xing & Ling Li & Zhuming Bi & Marzena Wilamowska‐Korsak & Li Zhang, 2013. "Operations Research (OR) in Service Industries: A Comprehensive Review," Systems Research and Behavioral Science, Wiley Blackwell, vol. 30(3), pages 300-353, May.
    2. Yongbo Xiao & Jian Chen, 2014. "Evaluating the potential effects from probabilistic selling of similar products," Naval Research Logistics (NRL), John Wiley & Sons, vol. 61(8), pages 604-620, December.
    3. Hübner, Alexander & Hense, Jonas & Dethlefs, Christian, 2022. "The revival of retail stores via omnichannel operations: A literature review and research framework," European Journal of Operational Research, Elsevier, vol. 302(3), pages 799-818.
    4. Goedhart, Joost & Haijema, René & Akkerman, Renzo & de Leeuw, Sander, 2023. "Replenishment and fulfilment decisions for stores in an omni-channel retail network," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1009-1022.
    5. Song, Boqian & Li, Michael Z.F. & Zhuang, Weifen, 2021. "Dynamic channel control and pricing of a single perishable product on multiple distribution channels," European Journal of Operational Research, Elsevier, vol. 288(2), pages 539-551.
    6. Mashalah, Heider Al & Hassini, Elkafi & Gunasekaran, Angappa & Bhatt (Mishra), Deepa, 2022. "The impact of digital transformation on supply chains through e-commerce: Literature review and a conceptual framework," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).

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