EURO 2025 Leeds
Abstract Submission

1444. An efficient two stage stochastic optimization model for a joint inventory and fulfillment problem in omni-channel logistics

Invited abstract in session WC-56: Logistics, stream Vehicle Routing and Logistics.

Wednesday, 12:30-14:00
Room: Liberty 1.11

Authors (first author is the speaker)

1. Shahana Kappil
Mathematics, Khalifa University, UAE

Abstract

This paper addresses a joint inventory and fulfillment problem under stochastic demand for an omnichannel
retailer. The retailer must determine initial inventory allocations across multiple fulfillment locations before demand
realization and subsequently decide from where to fulfill customer orders from available inventory after
demand is observed. The objective is to minimize total expected costs, including inventory holding costs, fulfillment
costs, and penalty costs for unfulfilled demand. The problem is modeled as a two-stage stochastic optimization
problem.
To manage the computational challenges posed by the large number of scenarios, we employ a recently developed
scenario reduction method based on a modified Wasserstein distance that takes into account the cost structure. Via extensive numerical experiments, we compare its performance to the Sample Average Approximation method(SAA) and a state of the art algorithm. The results indicate that the proposed scenario reduction method leads to significantly lower cost while the SAA has lower computational times and similar performance to the state of the art algorithm.

Keywords

Status: accepted

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