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www.elsevier.com/locate/procedia

The 8th International Conference on Information Technology and Quantitative Management

The 8th International Conference on Information Technology and Quantitative Management
(ITQM 2020 & 2021)
(ITQM 2020 & 2021)
Value of High-Quality Distribution in Front Warehouse Mode
Value of High-Quality Distribution in Front Warehouse Mode
Retailing
Retailing
Jiayi Zhu a,b,c, *, Xin Tian a,b,c,*
Jiayi Zhu a,b,c,*, Xin Tian a,b,c,*
a
Research Center on Fictitious Economy and Data Science, Chinese Academy of Sciences, Beijing 100190, China
a
School Center
Research
b
of Economics and Management,
on Fictitious Economy andUniversity of Chinese
Data Science, Academy
Chinese Academyof Sciences, Beijing
of Sciences, 100190,
Beijing China
100190, China
c b
School of of
Key Laboratory Economics
Big Data and Management,
Mining University
and Knowledge of Chinese
Management, Academy
Chinese of Sciences,
Academy BeijingBeijing
of Sciences, 100190, China China
100190,
c
Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Beijing 100190, China

Abstract
Abstract
Front warehouse mode retailing originates from the e-commerce logistics industry, pre-positioning the warehouse
Front warehouse
and placing mode orders
customer retailing originates
close to the from the e-commerce
community logisticssoindustry,
service station, pre-positioning
that goods the warehouse
can be delivered quickly.
and placinghave
Consumers customer orders higher
put forward close to the community
requirements service
for the station,
timeliness so that goods
of logistics can beand
distribution delivered quickly.
the convenience
Consumers
of have put forward
online purchases higher
in the front requirements
warehouse for Using
mode. the timeliness of logistics
panel data of 37,362distribution and the
transactions fromconvenience
159 front
of online purchases
warehouses in the
in the online front we
market, warehouse
study how mode. Using satisfaction
consumers’ panel data of on 37,362
productstransactions from
and logistics, 159 asfront
as well the
warehouses in sorting
punctuality of the online
andmarket,
deliveryweaffect
studysales
howperformance.
consumers’ satisfaction
Our resultson products
show and logistics,
that negative review asof
well as the
products
punctuality
and logisticsofwill
sorting and delivery
significantly affect
reduce sales
retail performance.
sales performance. OurInterestingly,
results showwe thatfind
negative review of
that punctual products
sorting and
and logistics
delivery will significantly
increase the number reduce
of dailyretail
orderssaleswhile
performance.
reduce theInterestingly,
average saleswe amount
find that per
punctual
order.sorting
When andthe
delivery increase
punctuality the number
of delivery service of daily ordersconsumers
is guaranteed, while reduce the average
are willing sales
to place amount
orders moreper order. When
frequently even the
for
punctuality of delivery
some low-priced service
daily goods. is guaranteed,
This paper emphasizesconsumers are willingofto
the importance theplace orders
quality more frequently
of delivery service in even for
the front
some low-priced
warehouse mode,daily goods. This
and inspires papertoemphasizes
retailers the importance
give full play of the quality
to the role of of delivery
front warehouse inservice
meeting inthe
the daily
front
warehouse
needs mode, and
of consumers forinspires retailers and
high-frequency to give full play consumer
fast-moving to the rolegoods.
of the front warehouse in meeting the daily
needs of consumers for high-frequency and fast-moving consumer goods.
© 2021 The Authors. Published by Elsevier B.V.
© 2021 The Authors. Published by Elsevier B.V.
This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0)
© 2021 The
Selection Authors.
and/or Published
peer-review by Elsevier
under B.V. of the organizers of ITQM 2020&2021
Peer-review under responsibility of responsibility
the scientific committee of the The 8th International Conference on Information Technology
Selection and/or peer-review under responsibility
and Quantitative Management (ITQM 2020 & 2021) of the organizers of ITQM 2020&2021
Keywords: front warehouse; delivery service; customer satisfaction; sales performance; retailing
Keywords: front warehouse; delivery service; customer satisfaction; sales performance; retailing

1. Introduction
1. Introduction
With the rise of omni-channel retail opening up the new era of online ordering and fast delivery, consumers
With
have putthe rise ofhigher
forward omni-channel retailfor
requirements opening up the
freshness of new era of
products online
and speedordering and fast
of logistics. Thedelivery, consumers
quality of delivery
have put forward higher requirements for freshness of products and speed of logistics. The quality of delivery

* Corresponding author. E-mail address: zhujiayi20@mails.ucas.ac.cn (J. Zhu), tianx@ucas.ac.cn (X. Tian).
* Corresponding author. E-mail address: zhujiayi20@mails.ucas.ac.cn (J. Zhu), tianx@ucas.ac.cn (X. Tian).

1877-0509 © 2021 The Authors. Published by Elsevier B.V.

This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0)
Peer-review under responsibility of the scientific committee of the The 8th International Conference on Information Technology and
Quantitative Management (ITQM 2020 & 2021)
10.1016/j.procs.2022.01.014
 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117 111
Jiayi Zhu, Xin Tian / Procedia Computer Science 00 (2021) 000–000

and distribution services should be paid more attention to, especially for those products just in demand and with
high-frequency, such as fresh agricultural products and fast-moving consumer goods.
Front warehouse originates from the e-commerce logistics industry, it is a kind of retail business mode
prepositioning orders to where close to community service stations through the online operation of corporate
headquarters, and thus achieve the rapid delivery of goods. Front warehouse mode adds a small warehouse near
the consumer end (i.e., the front warehouse) on the basis of the traditional distribution mode. By predicting the
demand around the front warehouse, fresh goods are transported to the front warehouse for storage in advance.
When consumers place orders on the online platform, retailers can pick up and pack the goods directly from the
front warehouse and complete the distribution rapidly. In this way, retailers can shorten the delivery time and
reduce the loss of fresh products. Therefore, front warehouses are generally built near the communities where
consumers are concentrated, and play an important role in the last-mile delivery. Since Internet technology has
been widely used in the logistics industry in recent years, greatly improving the delivery speed of front
warehouses while reducing the cost at the same time.
With the wide application of the front warehouse mode retailing in the practice of enterprises, it gradually
become a hot topic in academic research. So far, the relevant studies mainly focused on the theoretical research
of terminal distribution, designing of order assignments (Liu et al. 2020), warehouse location and path
optimization (Adamo et al. 2018) to improve the on-time performance of last-mile delivery services. Poel and
Buckinx (2005) took the lead in studying the influence of front warehouse on customer purchasing intention.
However, empirical studies on retail performance under front warehouse mode are still relatively scarce. Prior
literatures show that consumer satisfaction with products and logistics affects retail revenue (Luo et al. 2020; Cui
et al. 2020). Consumers in the front warehouse supply mode are more time-sensitive compared to those shopping
in traditional e-commerce retailing. Therefore, our research focuses on consumer satisfaction with the quality of
distribution and explore its impact on retail performance. Since the front warehouse is still a very young-aged
retailing mode, there is little empirical research work on it. This paper enriches the work on front warehouse, and
we hope to inspire future researches on this new field.
Using the daily sales data from one of the largest online platforms selling fresh food with delivery services in
China, we reveal the impact of delivery quality on retail performance of front warehouse. In this paper, delivery
quality is measured from the following aspects: customers’ review of products and distribution services, and the
punctuality of sorting and delivery. We first use the number of daily orders to represent sales performance to get
our main results. The significance of panel regression coefficients show that high-quality distribution is important
to front warehouse retailing performance. Then we replace the dependent variable with the total sales amount
and average sales amount of daily orders to check the robustness of our conclusion. We also find an interesting
conclusion that punctual sorting and delivery will reduce the average sales amount per order. Interpretating this
conclusion, we believe that timeliness and convenience are the main characteristics of the front warehouse model
that differ from the traditional retailing. Therefore, with high-quality logistics to ensure punctuality, consumers
will buy more frequently even for some inexpensive daily goods. We expect to give management implications to
retailing practitioners to understand the importance of distribution quality in the front warehouse mode.

2. Hypothesis Development

2.1. Customer satisfaction

Previous literature suggests that consumer satisfaction with products and services (Gómez et al. 2004), and
reviews from other customers have nonnegligible impact on retail performance (Lu et al. 2013; Tandon, Kiran,
and Sah 2017). Especially in the online environment where consumers do not have enough information to judge
the quality of goods and services, so the comments of other people become a believable judgment for consumers
to make purchasing decisions. Retailers are always committed to improving after-sales service to avoid negative
112 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117
Jiayi Zhu, Xin Tian / Procedia Computer Science 00 (2021) 000–000

reviews of customers, some even rewards of cash rebates for favorable comments. Therefore, we assume the low
rating and negative reviews of products can reduce retail sales performance, and make Hypothesis 1 as below.
Hypothesis 1 (H1): Low product review has a negative effect on retail sales performance.

For consumers, the timeliness and convenience of the front warehouse mode is its biggest advantage over
traditional e-commerce retail. Since consumers are more sensitive to delivery time in the front warehouse
retailing (Adamo et al. 2018), we believe that consumers satisfaction with distribution service also affect retail
performance. In the new era of online ordering and offline delivery, consumers can not only rate goods, but also
make comments and rating on the distribution service. Customers can rely on previous reviews to judge the
distribution quality when making purchasing decisions (Luo et al. 2020). Therefore, we hypothesis that a lower
distribution service review will also have a negative impact on sales performance.
Hypothesis 2 (H2): Low distribution review has a negative effect on retail sales performance.

2.2. Distribution quality

Logistics distribution is an important link connecting retailers and consumers. Researches show that high
quality logistics services are of great value and can have a positive impact on retail sales (Cui et al. 2020). Luo
et al. (2020) also point out that distribution time significantly affect consumers' purchasing decisions, online
retailers are making efforts to promote sales by marking "Same Day Handling" and other words showing fast
delivery in product titles and detail pages. Hence, we assume that efficient distribution has a positive impact on
retail sales.
In this paper, we measure distribution quality by the punctuality of sorting and delivery process. Sorting is a
transportation process in which commodities are classified, concentrated and loaded according to different
customers and distribution routes. After dividing the number of punctual sorted orders by the total orders per day,
we get the sorting punctuality rate for each front warehouse. According to the value of high-quality distribution
(Guo 2009; Chen and Moinzadeh 2018), we believe that the front warehouse with high sorting punctuality rate
earns greater sales, thus obtaining our Hypothesis 3 as follows.
Hypothesis 3 (H3): High sorting punctuality rate has a positive effect on retail sales performance.

After transported the goods to the front warehouse, the last process of logistics distribution is delivering them
to customers. The delivery process poses the “last-mile” problem to the retail industry, a research hotspot for
several years in retailing and logistics field (Liu et al. 2020). Delivery time plays an important role in inventory
performance (Chen and Moinzadeh 2018). This paper argues that high quality distribution should be able to
deliver goods on time and thus improve retail performance, especially in the front warehousing mode which
emphasizes timeliness and speed. Similar to the sorting punctuality rate, we divide the order number that
delivered on time by the total number of orders to get delivery punctuality rate. We assume that a higher delivery
punctuality rate has a positive effect on sales performance, which formulate the following Hypothesis 4.
Hypothesis 4 (H4): High delivery punctuality rate has a positive effect on retail sales performance.

3. Methodology

Cooperating with one of the largest fresh food and life service e-commerce platforms in China, who has
deployed a front warehouse strategy with a strong commodity supply system and logistics advantages since 2014,
our rich data set enables us to examine the effect of distribution quality in front warehouse mode. The retailer
has requested to remain anonymous. In order to study the impact of customer satisfaction with distribution quality
 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117 113
Jiayi Zhu, Xin Tian / Procedia Computer Science 00 (2021) 000–000

on front warehouse retailing performance, we construct variables as shown in Table 1. The dependent variable is
the measurement of sales performance, and three variables are adopted to ensure the robustness of our results,
DailyOrders, DailySales and UnitPrice. Independent variables are the negative review rate that consumers made
on goods and distribution services, and the punctuality rate of sorting and delivery. Due to the differences in
consumption levels in various regions, we also introduce a series of dummy variables DistrictDummies to indicate
the district where the front warehouses are located, so as to control the heterogeneity between the front
warehouses.

Table 1. Definition of Main Variables

Variable Definition
Dependent Variable
DailyOrders The number of orders per day for each front warehouse
DailySales The total sales amount of daily orders for each front warehouse
UnitPrice The average sales amount of daily orders for each front warehouse, dividing DailySales by DailyOrders
Independent Variable
LowProductReview The rate of negative reviews on product for each front warehouse per day, dividing the number of orders
with negative reviews on product by the total orders
LowDistributionReview The rate of negative reviews on distribution for each front warehouse per day, dividing the number of
orders with negative reviews on distribution by the total orders
SortingPunctualityRate The daily sorting punctuality rate of each front warehouse per day, dividing the number of punctual sorted
orders by the total orders
DeliveryPunctualityRate The daily delivery punctuality rate of each front warehouse per day, dividing the number of punctual
delivered orders by the total orders
DistrictDummies Dummy variables representing the district where the front warehouse is located

The cooperative company first established front warehouses in 9 districts of 2 megacities in China for pilot
operations. Hence, our data set contains the daily transactions of those 159 front warehouses. After weeding out
invalid and extreme data, we have 37,362 daily deals data from January 1, 2019, to August 24, 2020. The
descriptive statistics for all warehouses are shown in Table 2, four independent variables are all in the ratio
between 0 and 1.

Table 2. Descriptive Statistics

Variable Mean Std. dev. Min Median Max

Dependent Variable
DailyOrders 840.801 816.000 1.000 287.341 2856.000
DailySales (1,000¥) 51.537 46.791 0.040 24.605 208.891
UnitPrice (¥) 59.639 54.680 28.440 14.501 400.000
Independent Variable
LowProductReview 0.011 0.010 0.000 0.010 1.000
LowDistributionReview 0.868 0.965 0.000 0.230 1.000
SortingPunctualityRate 0.920 0.988 0.000 0.183 1.000
DeliveryPunctualityRate 0.001 0.001 0.000 0.005 1.000
114 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117
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To explore the impact of distribution quality on sales performance, we first apply pool model of panel data
regression as shown in Equation (1). DistrictDummies are introduced to control the heterogeneity between front
warehouses. The coefficients of four independent variables are used to estimate the impact of customer
satisfaction on the following sales performance.

 0  1 LowProductReviewit   2 LowDistributionReviewit
SalesPerformanceit 
  3 SortingPunctualityRateit   4 DeliveryPunctualityRateit (1)
9
   ij DistrictDummiesij   it
j 1

Next, we estimate through the random effects model of panel data as shown in Equation (2), assuming that
the unobserved random variable i is not correlated with all explanatory variables. We also introduce
DistrictDummies to control the heterogeneity between front warehouses in Equation (2).

 0  1 LowProductReviewit   2 LowDistributionReviewit
SalesPerformanceit 
  3 SortingPunctualityRateit   4 DeliveryPunctualityRateit (2)
9
+  ij DistrictDummiesij +i   it
j 1

Finally, we apply individual fixed effects model for regression, assuming the unobserved random variable i
is correlated with explanatory variables. As shown in Equation (3), we delete DistrictDummies because the
information of district is included in the front warehouse fixed effect.

 0  1 LowProductReviewit   2 LowDistributionReviewit
SalesPerformanceit 
(3)
 3 SortingPunctualityRateit   4 DeliveryPunctualityRateit +i   it

4. Empirical Results

Table 3 shows the estimation results of taking DailyOrders as the dependent variable and using the robust
standard error clustered. Since DailyOrders is a counting variable, we apply Poisson regression and panel
regression methods to estimate the pool model, random effect model, and fixed effect model respectively.
Although both log-likelihood ratio and AIC in our results show that panel regression with fixed effect of column
(3) is the best estimation, the sign and significance of the independent variable coefficients remain robust. The
coefficients of LowProductReview and LowDistributionReview are always negative at the 1% significance level,
indicating that consumers’ negative comments on goods and distribution services reduce the number of daily
orders of front warehouses, thus supporting our Hypotheses 1 and 2. In addition, the coefficients of
SortingPunctualityRate and DeliveryPunctualityRate are significantly positive, which means that the punctual
sorting and delivery service are beneficial to the number of orders of front warehouses. High-quality distribution
has a positive impact on the retail performance of the front warehouse, so our Hypothesis 3 and 4 are also
supported.
 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117 115
Jiayi Zhu, Xin Tian / Procedia Computer Science 00 (2021) 000–000

Table 3. Main Results of the Impact of Distribution Quality on DailyOrders

Panel Regression Panel Possion Regression

Pool Random Fixed Effect Pool Random Fixed Effect
Model Effect Model Model Model Effect Model Model
(1) (2) (3) (4) (5) (6)
Independent Variables

LowProductReview -172.54** -184.25*** -184.30*** -2.79*** -1.63*** -1.63***

(58.338) (37.790) (37.693) (0.825) (0.028) (0.028)

LowDistributionReview -73.26** -83.19*** -83.23*** -0.07** -0.08*** -0.08***

(26.125) (17.556) (17.559) (0.027) (0.001) (0.001)
SortingPunctualityRate 131.36*** 158.10*** 158.22*** 0.14*** 0.17*** 0.17***
(33.611) (23.829) (23.836) (0.036) (0.002) (0.002)
DeliveryPunctualityRate 32424.08*** 31707.34*** 31703.91*** 26.95*** 25.94*** 25.94***
(0.007) (0.006) (0.006) (6.513) (0.110) (0.110)
Intercept 786.35*** 887.93*** 872.02*** 6.83*** 6.80***
(78.982) (39.614) (13.429) (0.041) (0.042) -

District fixed effect Yes Yes No Yes Yes No

No of observations 37361 37361 37361 37361 37361 37361
No of warehouses - 158 158 - 158 158
No of days - 602 602 - 602 602
F(15, 157) 6.41*** - - - - -
chi2(15) - - - 97.8*** - -
Log likelihood -2.59e+05 - -2.48e+05 -1.35e+06 -7.95e+05 -7.93e+05
AIC 518751.2 - 495570.7 2697171.7 1589669.6 1585849.2
BIC 518887.6 - 495604.8 2697308.1 1589814.6 1585883.3

Notes. Standard errors clustered on warehouses in parentheses.

* p < 0.1, ** p < 0.05, *** p < 0.01

Now we check the robustness of our results by taking DailySales and UnitPrice as the dependent variables of
Equations (1)-(3) and estimating with the panel regression of robust standard errors. The estimation results are
shown in Table 4. Taking DailySales as the dependent variables, the coefficients of LowProductReview and
LowDistributionReview of Columns (1)-(3) are negative and significant, which is consistent with our previous
analysis and supports Hypotheses 1 and 2. Coefficient of DeliveryPunctualityRate is positive and significant,
indicating that punctual delivery can improve the sales performance of the front warehouse, which supports
Hypothesis 4. However, the coefficient of SortingPunctualityRate is not significant, which means that the sorting
punctuality rate cannot significantly affect the total sales amount of the front warehouse. We suppose this is
because the sorting process does not directly face consumers. If the subsequent delivery process can make up for
the unpunctuality of the sorting, then the impact of SortingPunctualityRate on retail performance may be
neglected.
Columns (4)-(6) of Table 4 show the estimation results with UnitPrice as the dependent variable. The
coefficient of LowDistributionReview is negative and significant, however, the coefficient of LowProductReview
is negative but not significant, indicating that consumers' negative comments on product has little effect on the
116 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117
Jiayi Zhu, Xin Tian / Procedia Computer Science 00 (2021) 000–000

average sales amount of daily orders. Interestingly, we found that the coefficients of DeliveryPunctualityRate
and SortingPunctualityRate are negative and significant. This finding is different from the previous results of
DailyOrders in Table 3, but it also shows the importance of high-quality distribution in front warehouse retailing.
To be specific, we believe that timeliness and convenience are the main characteristics of the front warehouse
mode that differ from the traditional retailing. When customers know their goods can be delivered on time, it is
more likely for them to buy some fast-moving consumer goods such as fresh produce and daily necessities
frequently. Since such commodities are generally inexpensive, we can observe the results that the punctuality of
distribution service increases the number of orders (as shown in Table 3), but reduces the average sales amount
of each order. Therefore, the negative impacts of sorting and delivery punctuality on UnitPrice are observed in
Table 4.

Table 4. Main Results of the Impact of Distribution Quality on DailySales and UnitPrice

Dependent Variable DailySales UnitPrice

Pool Random Fixed Effect Pool Random Fixed Effect
Model Effect Model Model Model Effect Model Model
(1) (2) (3) (4) (5) (6)
Independent Variables
LowProductReview -15.88* -16.32** -16.32** -5.10 -4.67 -4.65
(6.971) (5.185) (5.175) (2.740) (2.510) (2.498)
LowDistributionReview -30.07*** -29.94*** -29.95*** -29.32*** -28.57*** -28.52***
(2.088) (1.351) (1.351) (1.137) (1.092) (1.091)
SortingPunctualityRate -2.34 -1.89 -1.89 -11.44*** -12.77*** -12.85***
(2.697) (1.772) (1.772) (1.407) (1.336) (1.334)
DeliveryPunctualityRate 810.71** 759.74** 759.44** -1591.36*** -1585.91*** -1585.62***
(300.308) (278.056) (278.003) (207.598) (208.581) (208.704)
Intercept 91.48*** 100.11*** 98.35*** 111.07*** 111.91*** 111.05***
(6.127) (3.153) (1.213) (1.893) (0.842) (0.557)
District fixed effect Yes Yes No Yes Yes No
No of observations 37361 37361 37361 37361 37361 37361
No of warehouses - 158 158 - 158 158
No of days - 602 602 - 602 602
F(15, 157) 51.37*** - - 423.91*** - -
Log likelihood -1.67e+05 - -1.57e+05 -1.38e+05 - -1.36e+05
AIC 333912.5 - 314027.7 275640.2 - 272727.9
BIC 334048.9 - 314061.8 275776.6 - 272762.0
Notes. Heteroskedasticity-consistent robust standard errors are reported in parentheses.
* p < 0.1, ** p < 0.05, *** p < 0.01

5. Conclusion

The front warehouse mode refers to an emerging retailing mode that places a warehouse closer to consumers.
By predicting the surrounding demand in advance, the goods are transported to the front warehouse for storage,
in order to shorten the distribution time to the consumer. Therefore, front warehouses are generally established
 Jiayi Zhu et al. / Procedia Computer Science 199 (2022) 110–117 117
Jiayi Zhu, Xin Tian / Procedia Computer Science 00 (2021) 000–000

near communities where consumers are concentrated, and play an important role in the last-mile of logistics
distribution. Since it is still a young-aged mode applied in retailing industry, relevant researches of front
warehouse are scarce. This paper explores the impact of distribution quality on sales performance in the context
of front warehouse and present opportunities for future researches.
Collecting data from the Chinese fresh online market, we conduct an empirical study on the influence of
distribution quality on retailing sales. According to our empirical evidence, consumers consider both online
reviews and the punctuality of distribution when making online purchases. In addition, on-time delivery increases
the number of orders while reduces the average sales amount of daily orders in the front warehouse, indicating
that consumers make purchases more frequently when high-quality distribution is ensured. Our results emphasize
the role of logistics distribution services in e-commerce, especially in the time-sensitive front warehouse mode.
We inspire that practitioners should consider improving the quality of distribution to promote retail performance.

Acknowledgements

This study is supported in part by the Beijing Natural Science Foundation (9212020), the National Natural
Science Foundation of China (71932002), and the Fundamental Research Funds for the Central Universities.

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