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Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales

Author

Listed:
  • Marshall Fisher

    (University of Pennsylvania, Philadelphia, Pennsylvania)

  • Ananth Raman

    (Harvard University, Boston, Massachusetts)

Abstract

Traditionally, fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available. Under a Quick Response system, lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand. We model and analyze the decisions required under Quick Response and give a method for estimating the demand probability distributions needed in our model. We applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60%. Relative to the cost that would have been incurred if no response were used, optimized response reduces cost by enough to roughly quadruple profits.

Suggested Citation

  • Marshall Fisher & Ananth Raman, 1996. "Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales," Operations Research, INFORMS, vol. 44(1), pages 87-99, February.
  • Handle: RePEc:inm:oropre:v:44:y:1996:i:1:p:87-99
    DOI: 10.1287/opre.44.1.87
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