An inventory model of e-marketplace with promotional program

Purpose - The fast-growing e-commerce industry with its special characteristics brings new challenges to the optimization of the supply chain and inventory management. This study investigates inventory-related optimization of an e-marketplace platform when cashback promotion is used to attract more customers. This study proposes a new inventory model to maximize e-commerce profit by optimizing the cashback amount and delivery period.

Design/methodology/approach – The proposed model assumes that customer demand is a function of price and delivery time in which price is affected by the cashback amount. The e-commerce has a profit-sharing contract with an e-payment company that facilitates the payment. E-commerce also builds collaboration under a cost-sharing contract with a supplier to ensure product delivery. A mathematical model is developed and certain theories are investigated. A numerical example illustrates the model and further sensitivity analysis gives several insights.

Findings – A new inventory model for an e-commerce system has been introduced and shows the impact of cashback promotion in the business. This study shows that managers can optimize the cashback amount and delivery time to get maximum profit. In certain cases, the manager may set a high cashback amount (e.g. 100%) to attract customers to place more orders.

Originality/value – This study presents a new inventory model for today's fast-growing e-commerce business; therefore, the results contribute to the understanding of promotion program practices and inventory management and provide insights for e-commerce managerial decisions.