Service and cost benefits through clicks-and-mortar integration: Implications for the centralization/decentralization debate

Traditional “Brick-and-Mortar” operations face the challenge of adapting to a new set of competitive rules made necessary by consumers who want the option of ordering electronically via the Internet. To satisfy these customers, firms must develop strategies that integrate their standard retail in-store channel with this relatively new on-line channel. Therefore, this research is designed to provide insights into supply chain inventory management strategies relevant to “Clicks-and-Mortar” firms trying to satisfy both on-line and in-store sales. Specifically, this work considers the total cost implications of various inventory allocation strategies while maintaining target customer service levels. Analysis focuses on the development of models capable of handling new operating strategies made possible by electronic commerce. The implications of inventory risk pooling are considered in depth, revealing the existence of characteristics that determine whether completely centralized or decentralized policies are preferable.