A Branch-and-Price Algorithm for an Integrated Online and Offline Retailing Distribution System with Product Return

Abstract

This study identifies critical inefficiencies within a dual-channel operation model employed by a fast fashion company, particularly the independent operation of three logistics distribution systems. These systems result in high operational costs and low resource utilization, primarily due to redundant vehicle dispatches to meet the distinct demands of retail store replenishment, online customer orders, and customer return demands, as well as random and scattered return requests leading to vehicle underutilization. To address these challenges, we propose a novel integrated logistics distribution system design and management method tailored for dual-channel sales and distribution businesses. The approach consolidates the three distribution systems into one cohesive framework, thus streamlining the delivery process and reducing vehicle trips by combining retail and customer visits. An optimization algorithm is introduced to factor in inventory and distribution distance, aiming to achieve global optimization in pairing retail store inventory with online customer orders and unifying the distribution of replenishment products, online products, and returned products. The paper contributes to the field by introducing a new variation of the Vehicle Routing Problem (VRP) that arises from an integrated distribution system, combining common VRP issues with more complex challenges. A custom Branch-and-Price (B&P) algorithm is developed to efficiently find optimal routes. Furthermore, we demonstrate the benefits of the integrated system over traditional, segregated systems through real-world data analysis and assess various factors including return rates and inventory conditions. The study also enhances the model by allowing inventory transfers between retail stores, improving inventory distribution balance, and offering solutions for scenarios with critically low inventory levels. Our findings highlight a significant reduction in total operating cost savings of up to 49.9% and vehicle usage when using the integrated distribution system compared to independent two-stage and three-stage systems. The integrated approach enables the utilization of vacant vehicle space and the dynamic selection and combination of tasks, preventing unnecessary mileage and space wastage. Notably, the integration of inventory sharing among retail stores has proven to be a key factor in generating feasible solutions under tight inventory conditions and reducing operational costs and vehicle numbers, with the benefits amplified in large-scale problem instances.