Using online pickup site inclusion policies to manage demand in retail/E‐tail organizations

A major development in online retailing is the significant increase in the number of traditional ‘offline’ retailers extending their brands online. Many of these retail/e‐tail firms are attempting to leverage channel synergies by allowing customers to purchase products over the internet and then pick their orders up at one of the firm's local stores. This paper proposes that the firm presents only a subset of its stores to online customers as available pickup locations, rather than simply listing all local stores with inventory. By doing so, the firm can protect stores with critically low inventory levels and thereby reduce backorder costs. Specifically, we develop and evaluate a dynamic pickup site inclusion policy that incorporates real‐time information to specify which of the firm's e‐fulfillment locations should be presented at online checkout. Computational results indicate that managing in‐store demand via such policies can decrease total cost (holding, backorder, and lost or redirected pickup sale costs) by as much as 18% over allowing customers to pick online orders up from any site with available inventory. The percentage of pickup sales and customers' sensitivity to travel are critical in determining the magnitude of the benefit.