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Top1. Introduction
With the rapid development of e-commerce in China, more and more people begin to surf the shopping websites and buy goods on the internet, the trading volume was more than $1 trillion in 2013 according to China’s E-commerce Report (2013), so more e-tailers try their best to service customers. On the other hand, more and more customers are reluctant to wait a few days or longer to complete their orders, thus requiring rapid processing and timely servicing. Customers just click the mouse to place an order and wait for the arrival of the goods. But how can these goods get to the customers? The answer is logistics. The process of delivering goods from e-tailers to customers on the Internet (or e-fulfillment) is not only the most critical operation in e-commerce (Koster, 2002; Lummus & Vokurka, 2002), but also the weakest link in the supply chain. E-fulfillment has being an important factor for customers to buy goods from the e-tailers. Weakness in e-fulfillment has adverse effects on the e-tailers. For example, Value American lost many customers because of failures in the e-fulfillment (Netessine, Randall, & Rudi, 2002). The e-tailers strive to determine and design mixture strategy to fulfill customer demand, and drop shipping has been adopted as an e-fulfillment option besides private inventory (Xiao, Chen, & Chen, 2009).
According to a survey by E-retailing World (2000), 56% of the suppliers are willing to accept e-tailers’ drop shipping request, 30.6% of the e-tailers use drop shipping as a major e-fulfillment approach, and 44.5% of the e-tailers rely on drop shipping as an alternative e-fulfillment option. The whole operation process of drop shipping is based on the agreement between the e-tailer and the supplier. The e-tailer receives the customer demand first, and then sends a drop shipping request to the supplier. The supplier distributes goods to the final customers directly, but these customers know little about the supplier. The e-tailer is only responsible for obtaining orders from customers, whereas the supplier is simply in charge of delivering goods to customers. Goods are stored in the supplier’s inventory system, and the supplier distributes products to customers with the e-tailer’s trademark and price (Fleischmann, Agatz, & Nunen, 2008; Scheel, 1990).