The Impact of Separation of Inventory and Ownership Based on the Drop-Shipping

Recently, the rapid development of e-commerce has raised a new channel operation model, namely drop-shipping. However, since the inventory level is determined by the supplier, the retailer does not bear any inventory risks under the drop-shipping model, which would lead to the retailer not being active in sales and the loss of the supplier due to the overage inventory. Therefore, this paper proposes a new model where the inventory and its ownership can be separated. The retailer, as inventory decision-maker, bears inventory risks and the supplier retains the function of delivery as drop-shipping. In order to prove the validity of the new model, this paper studies the new model with the traditional drop-shipping model as benchmark and obtains the optimal decision. Furthermore, we also find that it is beneficial to apply the new model in supply chain of commodity with low salvage through numerical analysis.