OTPTO: Joint Product Selection and Inventory Optimization in Fresh E-commerce Front-End Warehouses

TL;DR

This paper introduces OTPTO, a joint optimization approach for product selection and inventory management in fresh e-commerce warehouses, improving order fulfillment rates and customer satisfaction.

Contribution

It proposes a novel multi-task OTPTO framework that jointly optimizes product selection and inventory, outperforming traditional predict-then-optimize methods in fresh e-commerce settings.

Findings

Increases full order fulfillment rate by 4.34%

Reduces gap to optimal fulfillment rate by 5.27%

Demonstrates robustness on JD.com's 7Fresh platform

Abstract

In China's competitive fresh e-commerce market, optimizing operational strategies, especially inventory management in front-end warehouses, is key to enhance customer satisfaction and to gain a competitive edge. Front-end warehouses are placed in residential areas to ensure the timely delivery of fresh goods and are usually in small size. This brings the challenge of deciding which goods to stock and in what quantities, taking into account capacity constraints. To address this issue, traditional predict-then-optimize (PTO) methods that predict sales and then decide on inventory often don't align prediction with inventory goals, as well as fail to prioritize consumer satisfaction. This paper proposes a multi-task Optimize-then-Predict-then-Optimize (OTPTO) approach that jointly optimizes product selection and inventory management, aiming to increase consumer satisfaction by maximizing the full order fulfillment rate. Our method employs a 0-1 mixed integer programming model OM1 to determine historically optimal inventory levels, and then uses a product selection model PM1 and the stocking model PM2 for prediction. The combined results are further refined through a post-processing algorithm OM2. Experimental results from JD.com's 7Fresh platform demonstrate the robustness and significant advantages of our OTPTO method. Compared to the PTO approach, our OTPTO method substantially enhances the full order fulfillment rate by 4.34% (a relative increase of 7.05%) and narrows the gap to the optimal full order fulfillment rate by 5.27%. These findings substantiate the efficacy of the OTPTO method in managing inventory at front-end warehouses of fresh e-commerce platforms and provide valuable insights for future research in this domain.