The Value of Demand Information in Omni-Channel Grocery Retailing

Abstract

As e-commerce reaches one of the last strongholds of traditional fulfillment, how can grocers leverage the omni-channel trend and stay competitive in today's changing market landscape? To improve operating outcomes and address food waste concerns, this study investigates various scenarios in which the grocery retailer accepts online orders in advance. We examine the value of advance demand information through a Markov Decision Process-based model, in terms of changes to expected profits, outdating, freshness, and several inventory and service performance metrics. Our results indicate that when the demand lead time is longer than the replenishment lead time, close to 20% safety stock reduction on average can be achieved, leading to a 15% decrease in product deterioration and 26% less outdating. In some cases, we also find that it is possible to profitably offer discounted prices in exchange for the customer's future demand information.

Grocery omnichannel perishable inventories: performance measures and influencing factors

“…Along the same line, Bakker et al (2012) and Janssen et al (2016) underline the need for more product data visibility, such as expiry date, for perishable inventories. Siawsolit and Gaukler (2019) and Siawsolit and Gaukler (2021) study perishables in the omnichannel context and show that advance orders from the consumer lead to reduced replenishment lead time, lower rate of product deterioration and higher level of product availability. He et al (2019) argue that online channels reduce product waste.…”