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Optimizing Inventory Replenishment of Retail Fashion Products

  • 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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    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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    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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    1. Hirofumi Matsuo, 1990. "A Stochastic Sequencing Problem for Style Goods with Forecast Revisions and Hierarchical Structure," Management Science, INFORMS, vol. 36(3), pages 332-347, March.
    2. Gary D. Eppen & Ananth. V. Iyer, 1997. "Backup Agreements in Fashion Buying---The Value of Upstream Flexibility," Management Science, INFORMS, vol. 43(11), pages 1469-1484, November.
    3. George R. Murray, Jr. & Edward A. Silver, 1966. "A Bayesian Analysis of the Style Goods Inventory Problem," Management Science, INFORMS, vol. 12(11), pages 785-797, July.
    4. Warren H. Hausman & Rein Peterson, 1972. "Multiproduct Production Scheduling for Style Goods with Limited Capacity, Forecast Revisions and Terminal Delivery," Management Science, INFORMS, vol. 18(7), pages 370-383, March.
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