Analyzing Inventory Placement of Low-Volume Items in Online Retail

Abstract

Managing inventory effectively is a consistently difficult challenge for many large online retailers. This problem is exacerbated when dealing with low-volume items, which often occupy a disproportionately large proportion of inventory space and resources. This research lays out a foundation for investigating how to optimally place inventory across fulfillment centers (FCs) and higher-echelon storage facilities (HEFs).

A simulation has been built that considers demand rates, relevant costs (handling, shipping, holding, etc.), and other relevant metrics (review period, lead time, safety factor, etc.). The model closely mimics how a particular large online retailer functions. It can generate reports showing how costs and fill rates change with tweaks to specific inputs or methods of choosing how to allocate inventory. Building on this simulation, our analysis suggests that this research could lead to significant cost savings and better customer service.