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On the optimal product assortment: Comparing product and customer based strategies

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Author Info

  • Flapper, Simme Douwe P.
  • González-Velarde, José Luis
  • Smith, Neale R.
  • Escobar-Saldívar, Luis Jacob
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    Abstract

    This paper deals with the following general question: which products should be in our product assortment/portfolio if part or all of the (potential) customers only order if we can deliver on-time the desired quantities for all or a predefined subset of the products that the customers desire (one-stop-shopping concept)? In this context, two strategies are compared: a product based assortment, in which products are included based on their expected individual contribution to the total net profit, and a customer based assortment, in which customers are included based on their expected contribution to the total net profit. Mathematical models are presented to calculate the net profit for each of the above two strategies for a manufacturer confronted with limited production capacity, setup times, setup cost, and holding cost. The results of a case study from practice show that an assortment made up of products selected based on their individual contribution may lead to a much lower expected total net profit than a customer based assortment. Suggestions for further research are given.

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    File URL: http://www.sciencedirect.com/science/article/B6VF8-4Y7P4JN-1/2/86e4c20e11392a4d4a869aeaad3b29c3
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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 125 (2010)
    Issue (Month): 1 (May)
    Pages: 167-172

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    Handle: RePEc:eee:proeco:v:125:y:2010:i:1:p:167-172

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Multi-product Setup time and cost Limited capacity Product assortment Product portfolio MILP;

    References

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    1. Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2005. "Retail Assortment Planning in the Presence of Consumer Search," Manufacturing & Service Operations Management, INFORMS, vol. 7(4), pages 330-346, August.
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    6. Gérard P. Cachon & A. Gürhan Kök, 2007. "Category Management and Coordination in Retail Assortment Planning in the Presence of Basket Shopping Consumers," Management Science, INFORMS, vol. 53(6), pages 934-951, June.
    7. Yehuda Kahane, 1977. "Determination of the Product Mix and the Business Policy of an Insurance Company--A Portfolio Approach," Management Science, INFORMS, vol. 23(10), pages 1060-1069, June.
    8. Hariga, Moncer A. & Al-Ahmari, Abdulrahman & Mohamed, Abdel-Rahman A., 2007. "A joint optimisation model for inventory replenishment, product assortment, shelf space and display area allocation decisions," European Journal of Operational Research, Elsevier, vol. 181(1), pages 239-251, August.
    9. Khouja, Moutaz & Goyal, Suresh, 2008. "A review of the joint replenishment problem literature: 1989-2005," European Journal of Operational Research, Elsevier, vol. 186(1), pages 1-16, April.
    10. Paul R. Messinger & Chakravarthi Narasimhan, 1997. "A Model of Retail Formats Based on Consumers' Economizing on Shopping Time," Marketing Science, INFORMS, vol. 16(1), pages 1-23.
    11. Sharad Borle & Peter Boatwright & Joseph B. Kadane & Joseph C. Nunes & Shmueli Galit, 2005. "The Effect of Product Assortment Changes on Customer Retention," Marketing Science, INFORMS, vol. 24(4), pages 616-622, July.
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