Product Placement Optimization Using Parametric Cuts

Abstract

E-Commerce companies use forward distribution centers (FDC) that are closer to customers distance-wise to fulfill orders in a timely manner. However, due to the capacity, it is impossible to store every item vended in the FDC. If an customer order contains items not stored as inventory, it comes in several packages (called order split), leading to a worse consumer shopping experience and higher operations costs. The proposed method in this research reduces the number of split orders by building an item-order graph and solving for the optimal assortment problem using parametric cut over the graph, which can reflect consumers’ co-purchase behaviors.