We study proactive and reactive sea-based order-fulfillment decisions for a set of SKUs. In such systems, a proactive strategy may be more costly than a reactive strategy and variable marginal costs change with respect to an activity profile. We derive the optimal sets of SKUs and their quantities to handle prior (proactive strategy) or after (reactive strategy) demand materializes. Counterintuitive results show the proactive set may not necessarily include the high-demanded SKUs. This work extends the newsvendor model by analyzing negative marginal shortage costs. The model is illustrated with historical data from a sea-based logistics military application.

Order-fulfillment, Newsvendor model, Negative marginal shortage cost, Proactive and reactive strategies, Distribution, Prestaging, Sea-based logistics
dx.doi.org/10.1016/j.tre.2018.02.012, hdl.handle.net/1765/115761
Transportation Research Part E: Logistics and Transportation Review
Department of Technology and Operations Management

Mofidi, S.S, Pazour, J.A, & Roy, D. (2018). Proactive vs. Reactive Order-Fulfillment Resource Allocation for Sea-based Logistics. Transportation Research Part E: Logistics and Transportation Review, 114, 66–84. doi:10.1016/j.tre.2018.02.012