Modeling Quick Commerce: Winning On Inventory Availability, Delivery Time And Delivery Reliability

Abstract

Quick Commerce (QC) is an ultra-fast home delivery retail system that uses a network of dark stores (micro-fulfillment centers), located in close customer proximity, to rapidly fill and deliver orders within minutes of placement. Retailers offer fulfillment time guarantees and invest in inventory and delivery networks in support. However, poorly setting inventory and delivery capacity buffers can reduce profitability and even make operations unprofitable. Furthermore, because of intense competition in the QC market, a poor choice of reactive strategies by incumbents and entrants can make their businesses less lucrative.

Motivated by these market dynamics, we develop a parsimonious tactical planning model for a QC retailer who competes on availability, delivery time, and delivery reliability. The solution to the problem yields optimal values for fulfillment time, delivery reliability, and inventory availability. Subsequent analysis gives additional managerial insight: We find that an assortment-sizing effect carefully balances demand stimulation and inventory costs; this effect is further amplified by demand variability, making QC operations more viable for certain customer demand segments and smaller assortment sizes. In addition, when a QC retailer operates multiple dark stores in a fully decentralized system, we find that profitability increases and then falls as the number of dark stores increases due to closer proximity to customers in a fully decentralized system; but inventory and driver buffers also increase with the number of dark stores. However, a hybrid system with centralized driver pooling across dark stores can improve profitability by recovering scale economies in delivery.

While single-retailer QC modeling offers tactical insights, strategic insights arise from game-theoretic analyses of duopoly settings. First, in an e-Commerce-versus-QC scenario, an e-Commerce retailer can compete by lowering delivery times and may be able to blockade QC retailer entry if delivery times drop sufficiently.

Then, in a QC versus QC scenario, the market expansion effect creates positive externalities where both demand and service quality rise with the entry of a QC rival. When the market is mature, the market-stealing effect dominates, leading to both lower demand and lower service quality.

This research is a joint work with Gyanesh Raj and Maqbool Dada