Driving Collaboration and Optimization at Wayfair


E-commerce destination becomes a household name, leverages O.R. to enable, scale and improve supply chain

In March 2020, as the United States came to terms with the extent and severity of the COVID-19 pandemic, Wayfair – along with individuals and businesses around the world – adapted to a different way of working. Additional safety protocols in warehouses and work-from-home whenever possible became the norm. For an operations research (O.R.) scientist, this seemed easy enough – a good internet connection and a comfortable home office setup gets you most of the way there. Indeed, working as an O.R. scientist for a furniture company made the process of upgrading my workspace that much easier.

As soon as it became apparent, many people had the same idea. Since last March, online shopping has become an even more entrenched behavior, especially in the home category. By continuing to deliver a truly differentiated experience, Wayfair sustained strong growth and is excited about the runway ahead. This confirmed and put additional weight behind an existing core directive: leverage operations research to enable, scale and improve the supply chain.

What is now one of the largest e-commerce destinations for the home began in 2002 as a single website selling stereo racks and stands and grew to more than 250 standalone sites dedicated to everything from barstools to birdhouses. In 2011, founders Steve Conine and Niraj Shah decided to move all of their e-commerce sites into one mega destination for the home: Wayfair. One year later, Wayfair exceeded $600 million in annual revenue and was well on its way to becoming a household name for its millions of products across a wide array of styles and price points. The company, which generated $14.1 billion in net revenue in 2020 (up 55% from 2019), now offers 22 million products across five distinct brands – Wayfair.com, AllModern, Birch Lane, Joss & Main and Perigold. Headquartered in Boston, Wayfair employs more than 16,000 people throughout North America and Europe.

Wayfair’s operational mantra of “cost-efficient, perfect orders at scale” is the company’s North Star. The business is most successful when an order is delivered to a customer on time, incident free and without the need for the customer to contact us. Wayfair’s rapid growth, however, creates the enviable problem of determining how to balance this pursuit of “perfect orders” with the need to ensure scalability to keep up with growth. With the 55% growth of business from 2019 to 2020, the company’s supply chain has grown at a similar pace. The number of participating suppliers leveraging Wayfair Fulfillment (CastleGate) grew 60% year-over-year in 2020, and meaningful growth in container quantity in Wayfair’s International Supply Chain (ISC) services is expected going forward. Processes that were automated with simple decision-making capabilities are now at a scale where optimization can drive significant value and contribute in a meaningful way to the ongoing cost-efficiency of the supply chain.

Bringing Furniture and Home Décor to Your Doorstep

The characteristics of furniture and home décor add complexity to the supply chain. The Wayfair platform connects its tens of millions of customers to more than 16,000 suppliers. Providing a large catalog for – as our tagline states – “a zillion things home” has created the need for both a traditional dropship network from suppliers’ warehouses and forward-positioned supplier inventory in our own warehouses. In both cases, products such as lamps or small kitchen appliances can be shipped with parcel carriers. Furniture, on the other hand, is bulky and fragile and may require special conditions for storage or transport.

Bringing these products to our customers while satisfying high expectations with respect to delivery speed and quality (e.g., damage) created the need for a specialized delivery network. The Wayfair Delivery Network (WDN) directly manages Wayfair’s large parcel deliveries via consolidation centers, cross docks and last-mile home delivery facilities, allowing Wayfair to expedite deliveries, reduce damage and improve overall customer experience. This complex supply chain also includes ISC services, leveraging Wayfair’s scale and close partnership with leading ocean cargo companies to help suppliers unlock freight capacity at fair market prices.

Because the core of Wayfair’s logistics strategy is to transport an immense number of SKUs from a vast spectrum of suppliers to the right place, at the correct quantity, and at the lowest-cost possible for both customers and the company, transportation and delivery is an area where the O.R. team has been particularly active. Once a customer orders new furniture on Wayfair’s website, the clock starts ticking on ensuring an on-time delivery. This starts with first-mile pickups: using Wayfair’s dedicated fleet to pick up the order from suppliers. Here, we encounter a classic vehicle routing problem (VRP) with a twist – furniture can be fragile, bulky, oddly-shaped and tends to not pack nicely in a truck, so estimating exactly what orders can be put together on a route is challenging.

Once the order arrives in the network, the next task is to quickly and efficiently transport it over large distances. As such, a tug-of-war between speed, utilization and reliability emerges. Running direct lanes between induction points on one side of the country to a last-mile customer delivery location on the other side may not have the required order volume to run daily. Cross-docking orders can decrease time-to-customer but adds additional handling and therefore cost and risk of damage. Finally, the classic VRP is again encountered in last mile, as Wayfair directly handles 70% of large-parcel deliveries.

When designing Wayfair’s customer delivery network on a strategic level, the standard tools proved to be too inflexible, causing incongruity between the modeled world and Wayfair business processes. Standard tools also had prohibitively long run times due to an inability to exploit knowledge of the model structure. Close collaboration between Transportation, Analytics and Operations Research groups at Wayfair enabled the in-house development of a network optimization engine that provides necessary flexibility between levels of detail. These efforts have borne fruit in the ability for Wayfair to respond quickly and accurately to a variety of high-impact business questions from high-level network design (e.g., where should new fulfillment centers be opened and with what implications for customer delivery speed?) to Black Friday preparedness (e.g., what mitigation strategies can be put in place to effectively collaborate with our parcel carriers?) and operational planning (e.g., what are the transportation capacity needs for the coming weeks?).

For orders that are fulfilled from Wayfair warehouses, collaboration with suppliers minimizes costs for both the suppliers and Wayfair. To this end, a cross-functional team of engineers, data scientists, operations experts and operations research scientists created an optimization and supplier collaboration platform called Buyfair. Buyfair allows the cross-functional team to influence the product’s journey directly from the manufacturing site all the way to Wayfair’s warehouses. Buyfair offers recommended quantities of each product in CastleGate and directs which SKUs should travel to which CastleGate warehouse locations across North America and Europe, as well as route them as efficiently as possible over land and sea. In doing so, Buyfair effectively ensures availability to the customer while minimizing time, distance traveled, touchpoints and damage involved.

Beyond its operational value, Buyfair helps Wayfair build meaningful relationships with suppliers. In implementing the platform, Wayfair relies on its supplier partners to offer transparency around sourcing and production that may include valuable proprietary information. In return, however, suppliers can leverage analytics insights to maximize their product velocities while minimizing cost. By engaging with Wayfair in the planning processes that Buyfair facilitates, suppliers demonstrate their trust in our company. We, in turn, closely guard that confidence and aim to drive our business in ways that benefit suppliers while also delighting our customers. Given the quantity and diversity of the SKUs serviced, all of the places they originate in and travel to, the various means Wayfair uses to get them there, and what other products they might travel with, it is a highly complex optimization model to arrive at the optimized recommendation for suppliers.

These are some current examples of the types of problems the O.R. team is tackling at Wayfair. In view of current operating procedures and Wayfair’s continued evolution, this project portfolio will only continue to develop in new and exciting directions. As offerings to our customers continue to evolve, so will the areas where O.R. can contribute to tackling challenges and keeping the supply chain at Wayfair cost-efficient, scalable and customer-centric across experiments like physical retail and expansion into new geographies. 

Successfully Delivering through Collaboration

A number of important choices help explain our ability to keep up with Wayfair’s growth and evolution: a centralized O.R. function, the creation of one team of scientists and engineers, and support for an environment that drives talent acquisition and retention.

Since it was established in 2016, the operations research team at Wayfair has been a centralized function in operations. This provides the group with an end-to-end view of operations, connecting the dots from suppliers in Asia to last-mile deliveries to customers in North America and Europe. As such, this enables us to understand how processes and tools can be designed and leveraged across geographies as well as business functions. Additionally, it creates a critical mass for balancing short-term, quick-fix projects with longer-term investments (including the tools mentioned above) into platforms that prepare Wayfair for future growth. It does, however, come at the price of being “an outsider,” requiring the O.R. team to build confidence that it can deliver on projects critical to the success of the internal customer. This has been a small price to pay, and the team has effectively demonstrated a track record of successful projects and trust from key stakeholders.

This reputation, specifically, has been shaped by a focus on delivering robust solutions quickly. Core to this speed has been the combined team of operations research scientists and engineers. This partnership allows us to own the full process from solution design to robust tool production, as well as to own the execution of the tool from a technical and functional perspective. Working side-by-side in this manner allows us to not only speed up the process, but also create a strong functional understanding for the engineers, enabling them to architect tools without treating the core optimization function as a black box. From a personal development perspective, this collaboration also allows O.R. scientists to grow their engineering skills, allowing them to quickly act on model design and developing that design.

Attracting and retaining talent happens on several key levels. Of particular importance is promoting the diversity of the team and its projects across many axes. Blending a strong theoretical foundation – two-thirds of the team earned Ph.D. degrees – with experience in supply chain consulting and software companies, we can lead the charge from setting strategy to creating effective tools to enable it. A conscious push for diversity in gender, ethnicity and cultural background – a core value of Wayfair overall – further contributes to the team dynamic. Ultimately, this range of personal and professional experience makes the team effective in ideating, working with stakeholders and above all, enjoying day-to-day collaboration.

With $14 billion in revenue, Wayfair has less than 2% of the addressable market in North America and Western Europe. As such, our growth trajectory is incredibly steep if we continue to get things right – and a lot of that depends on how the operations research team defines the way that Wayfair should operate. With strong continued growth, Wayfair in general, and the O.R. team in particular, finds itself in a great position – a full slate of diverse O.R. problems to pursue, the setup to impact the direction of the company and its supply chain, and a strong mandate to pursue short- and long-term objectives. 

Edwin Lohmann Ph.D., is associate director of Operations Research at Wayfair.

Article was previously published in OR/MS Today magazine.