Why In-store Pickup Isn’t As Seamless As It Seems for Retailers

Buying online and picking up in-store has provided consumers with a new way to shop hassle-free. For retailers, it’s created new operational challenges toward fulfillment scheduling. But new research from the University of Maryland’s Robert H. Smith School of Business is providing a few solutions.

The reasons why the buy-online-pickup-in-store (BOPS) approach has resonated with consumers should come as no surprise to anyone – no shipping fees, shorter delivery time and more peace of mind. It’s the best of both online and offline worlds, says Maryland Smith’s Zhi-Long Chen in his research published in Productions and Operations Management.

And the numbers back it up – A 2016 JDA consumer survey indicated that 46% of respondents have used BOPS in the 12 months prior to being polled, while another survey found that 85% of consumers have shopped both online and in a physical store in the past six months, with 73% of these shoppers using buy online pick up in store.

Examining the fulfillment scheduling decisions of BOPS orders intended to go to a single retail location, Chen, Maryland Smith’s Orkand Corporation Professor of Management Science, and co-author Xueqi Wu of Shanghai Jiao Tong University identified the new questions retailers are grappling with regarding their approach to BOPS order fulfillment: Which products should be included in the BOPS services? Which stores should offer such services? And should these products be priced differently from those sold through different channels?

However, Chen writes that the most important decision retailers have to make is where BOPS orders should be processed, whether at a fulfillment center (FC) or at the store itself. And how can they best be delivered to brick-and-mortar stores?

“The problem is to determine where to fulfill each order (FC vs. the store), how to assign the orders fulfilled at the FC to trucks for delivery, and how to schedule the orders fulfilled at the store for store processing, so as to minimize the total fulfillment cost, including the delivery cost from the FC to the store incurred by the orders processed at the FC, and the processing cost for fulfilling the rest of the orders at the store, subject to the constraint that each order is ready for pickup at the store by its promised pickup ready time,” write the researchers.

Previous literature has focused on the delivery routing and distribution-related aspects of the issue, while others delved more into the order picking and scheduling aspects. But this research is unique in that it considers the three main issues jointly: fulfillment locations, scheduling and delivery.

With those issues in mind, Chen and Wu developed fast solution algorithms and analyzed their theoretical performance to validate effectiveness in both static and dynamic settings. The results, they write, are promising and can potentially help retailers serve their customers in a more responsive fashion at lower total fulfillment cost. And considering that research on order processing and order delivery decisions in omnichannel environments is relatively new, the researchers hope that their work spurs further developments.

“We show that these algorithms perform well, particularly on large-scale test instances, and derive several important managerial insights about several key elements of the BOPS fulfillment operations,” write the researchers. “We also demonstrate the effectiveness of applying our algorithms in a rolling horizon fashion to solve a dynamic version of the problems with random order arrivals.”

Read More: “Fulfillment Scheduling for Buy-Online-Pickup-In-store Orders”, in Production and Operations Management.