RISK-POOLING EFFECTS OF DIRECT SHIPPING IN A ONE-WAREHOUSE N-RETAILER DISTRIBUTION SYSTEM

Abstract

The other day I visited one of discount stores in my area. Service Merchandise to buy a humidifier. I decided to buy one of the models exhibited in the store. filled out an order form, and submitted it to a cashier. But the cashier told me that the model I chose was out of stock. After checking its availability at other places (i.e.. the company distribution center and other stores), she suggested that she could ship what I wanted to me directly without additional shipping and handling charge. I did so and the humidifier arrived in about a week. Through this experience, I got to know that this type of direct shipping from a distribution center or a retail store with available inventory is very common in the U.S retail industry. This paper models direct shipping in a multi-echelon distribution system.