Coordinated inventory policies for meeting demands from both store and online BOPS channels

When Internet and eCommerce become more popular, an increasing number of people prefer to shop online rather than in-store. As a result, many local stores are being shut down. To help keep retailer's store open and improve its competitiveness, many stores at present incorporate the "buy online, pick up in-store" (BOPS) service. This has given rise to new challenges in deciding how to allocate the limited store shelf-spaces to meet both store and BOPS demands. Our optimal decisions of product order-quantity and inventory-allocation for meeting dual-channel demands include constraints on probability in satisfying in-store demands and limitation of total inventory-space. This study develops four models representing the traditional situation without the BOPS service: benchmark model; separated inventory and separated order for two channels; joint inventory but separated order for two channels; and joint inventory and joint order for two channels. Extensive single- and multiple-variable experiments explores impact of changing model-parameter values (e.g., BOPS demand, cross selling effect) to expected total profits and optimal order-quantities. Conditions of which model leads to larger profits are discussed.