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Optimizing Inventory Replenishment of Retail Fashion Products

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Author Info

  • Marshall Fisher

    (The Wharton School, University of Pennsylvania, 3620 Locust Walk, 3207 SH-DH, Philadelphia, Pennsylvania 19104-6366)

  • Kumar Rajaram

    (University of California, Los Angeles, Anderson School of Management, Los Angeles, California 90095-1481)

  • Ananth Raman

    (Harvard Business School, Soldiers Field, Boston, Massachusetts 02163)

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    Abstract

    We consider the problem of determining (for a short lifecycle) retail product initial and replenishment order quantities that minimize the cost of lost sales, back orders, and obsolete inventory. We model this problem as a two-stage stochastic dynamic program, propose a heuristic, establish conditions under which the heuristic finds an optimal solution, and report results of the application of our procedure at a catalog retailer. Our procedure improves on the existing method by enough to double profits. In addition, our method can be used to choose the optimal reorder time, to quantify the benefit of leadtime reduction, and to choose the best replenishment contract.

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    File URL: http://dx.doi.org/10.1287/msom.3.3.230.9889
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    Bibliographic Info

    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 3 (2001)
    Issue (Month): 3 (November)
    Pages: 230-241

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    Handle: RePEc:inm:ormsom:v:3:y:2001:i:3:p:230-241

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    Related research

    Keywords: Retailing; Inventory Replenishment; Stochastic Dynamic Programming; Heuristics;

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    Cited by:
    1. Baruah, Pundarikaksha, 2006. "Supply Chains Facing Atypical Demand: Optimal Operational Policies And Benefits Under Information Sharing," MPRA Paper 16101, University Library of Munich, Germany.
    2. Patil, Rahul & Avittathur, Balram & Shah, Janat, 2010. "Supply chain strategies based on recourse model for very short life cycle products," International Journal of Production Economics, Elsevier, vol. 128(1), pages 3-10, November.
    3. Mostard, Julien & Teunter, Ruud & de Koster, René, 2011. "Forecasting demand for single-period products: A case study in the apparel industry," European Journal of Operational Research, Elsevier, vol. 211(1), pages 139-147, May.
    4. Caulkins, Jonathan P. & Hartl, Richard F. & Kort, Peter M. & Feichtinger, Gustav, 2007. "Explaining fashion cycles: Imitators chasing innovators in product space," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1535-1556, May.
    5. Mostard, Julien & de Koster, Rene & Teunter, Ruud, 2005. "The distribution-free newsboy problem with resalable returns," International Journal of Production Economics, Elsevier, vol. 97(3), pages 329-342, September.
    6. Choi, Tsan-Ming & Chow, Pui-Sze, 2008. "Mean-variance analysis of Quick Response Program," International Journal of Production Economics, Elsevier, vol. 114(2), pages 456-475, August.
    7. Karakul, M., 2008. "Joint pricing and procurement of fashion products in the existence of clearance markets," International Journal of Production Economics, Elsevier, vol. 114(2), pages 487-506, August.
    8. Li, Xiang & Li, Yongjian & Cai, Xiaoqiang, 2011. "On a multi-period supply chain system with supplementary order opportunity," European Journal of Operational Research, Elsevier, vol. 209(3), pages 273-284, March.
    9. Wanke, Peter F., 2008. "The uniform distribution as a first practical approach to new product inventory management," International Journal of Production Economics, Elsevier, vol. 114(2), pages 811-819, August.
    10. Serel, Dogan A., 2009. "Optimal ordering and pricing in a quick response system," International Journal of Production Economics, Elsevier, vol. 121(2), pages 700-714, October.
    11. Cheaitou, Ali & van Delft, Christian & Dallery, Yves & Jemai, Zied, 2009. "Two-period production planning and inventory control," International Journal of Production Economics, Elsevier, vol. 118(1), pages 118-130, March.
    12. Fang, Xin & Zhang, Cheng & Robb, David J. & Blackburn, Joseph D., 2013. "Decision support for lead time and demand variability reduction," Omega, Elsevier, vol. 41(2), pages 390-396.

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