Determining Safety Stock for an Omni-Channel Environment

Determining Safety Stock for an Omni-Channel Environment

Thi Ngan Pham (Faculty of Business Administration,Ton Duc Thang University, VietNam), Albert Tan (Malaysia Institute for Supply Chain Innovation, Malaysia) and Alvin Ang (National University of Singapore, Singapore)
DOI: 10.4018/IJISSCM.2020040104

Abstract

The purpose of this article is to determine the safety stock for an omni-channel environment. The “Square Root Law” (for centralization of storage facilities) was proposed to combine the safety stock for both online and offline channels. A simulation study was conducted using a spreadsheet program and three scenarios were created based on review time, lead time and safety factor. This was based on the mean demand and standard deviation of the product's demand distribution. The study found that the sum of lead time and review time are significant in determining the amount of safety stock, and demand variability is a crucial determinant for safety stock. Recommendations are provided as guidelines for lowering the amount of safety stock in omni-channel environment.
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Literature Review

Single-channel means utilizing only a single mean of reaching potential customers. This includes being exclusively brick-and-mortar retail stores, or having purely an online e-commerce business (Hübner, Wollenburg, & Holzapfel, 2016). Figure 1 shows how a single-channel works.

Figure 1.

Single-channel. Source: (Hübner et al., 2016).

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Multi-channel are channels working side-by-side without interacting, similar to “working in silos” (Kourimsky & Berk, 2014; Verhoef et al., 2015). There is no logistics or operational interface between the channels. There are no common or shared objectives for the channels but individualized goals, like sales target for each channel (Hübner et al., 2016; Kourimsky & Berk, 2014). The end result for the company is competition, which might create more friction and misunderstanding, than overall better performance. Customers are not able to make purchases across the different channels, as information is not shared across the different channels.

Figure 2.

Multi-channel. Source: (Kourimsky & Berk, 2014).

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