Buy online and pick up in-store: Design of the service area

Retailers increasingly adopt the buy-online-pick-up-in-store (BOPS) mode of order fulfillment. We study BOPS in this paper by developing a theoretical model in which a physical retailer (store) adopting BOPS uses a recommended service area to fulfill orders from both determined (online) and casual (offline) customers in one order cycle. We obtain three major findings: (i) The ratio of unit inventory cost to BOPS customers' arrival rate to the store is the key factor that determines the size of the BOPS service area. (ii) From the point of view of product type, we provide the retailer with practical guidelines for judging whether a certain type of product should be allowed for BOPS or not. (iii) When orders can be cancelled, a moderate cancellation policy (MCP) is more beneficial to the retailer than a liberal/strict cancellation policy (LCP/SCP). Furthermore, compared with the reserve-online-pick-up-and-pay-in-store (ROPS) mode, BOPS is less profitable under LCP/SCP, but they have the same profitability under MCP.