An inventory-theoretic approach to product assortment and shelf-space allocation
TL;DR: In this article, a greedy heuristic and a genetic algorithm are proposed for the solution to the integrated problem of inventory-level-dependent demand inventory model and product assortment and shelf-space allocation.
About: This article is published in Journal of Retailing.The article was published on 1998-03-01. It has received 229 citations till now. The article focuses on the topics: Greedy algorithm & Product (mathematics).
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01 Jan 2008
TL;DR: In this article, the goal of assortment planning is to specify an assortment that maximizes sales or gross margin subject to various constraints, such as a limited budget for purchase of products, limited shelf space for displaying products, and a variety of miscellaneous constraints such as desire to have at least two vendors for each type of product.
Abstract: A retailer’s assortment is defined by the set of products carried in each store at each point in time. The goal of assortment planning is to specify an assortment that maximizes sales or gross margin subject to various constraints, such as a limited budget for purchase of products, limited shelf space for displaying products, and a variety of miscellaneous constraints such as a desire to have at least two vendors for each type of product.
476 citations
Additional excerpts
...Similar to these shelf space allocation papers, but using an inventory theoretic perspective, Urban (1998) models the own and cross product e¤ects of displayed inventory on demand rate in a mathematical program and solves for shelf space allocation and optimal order-up-to quantities....
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...Similar to these shelf space allocation papers, but using an inventory theoretic perspective, Urban (1998) models the own and cross product effects of displayed inventory on demand rate in a mathematical program and solves for shelf space allocation and optimal order-up-to quantities....
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TL;DR: An algorithmic process to help retailers compute the best assortment for each store and establishes new structural properties that relate the products included in the assortment and their inventory levels to product characteristics such as gross margin, case-pack sizes, and demand variability.
Abstract: Assortment planning at a retailer entails both selecting the set of products to be carried and setting inventory levels for each product. We study an assortment planning model in which consumers might accept substitutes when their favorite product is unavailable. We develop an algorithmic process to help retailers compute the best assortment for each store. First, we present a procedure for estimating the parameters of substitution behavior and demand for products in each store, including the products that have not been previously carried in that store. Second, we propose an iterative optimization heuristic for solving the assortment planning problem. In a computational study, we find that its solutions, on average, are within 0.5% of the optimal solution. Third, we establish new structural properties (based on the heuristic solution) that relate the products included in the assortment and their inventory levels to product characteristics such as gross margin, case-pack sizes, and demand variability. We applied our method at Albert Heijn, a supermarket chain in The Netherlands. Comparing the recommendations of our system with the existing assortments suggests a more than 50% increase in profits.
419 citations
Cites background from "An inventory-theoretic approach to ..."
...Urban (1998) extends the basic model to include inventory-related costs and compare heuristic solutions....
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01 Aug 1999
TL;DR: This study integrates the discovery of frequent itemsets with a (microeconomic) model for product selection (PROFSET) that enables the integration of both quantitative and qualitative criteria and demonstrates the impact of product assortment decisions on overall assortment profitability can easily be evaluated by means of sensitivity analysis.
Abstract: It has been claimed that the discovery of association rules is well-suited for applications of market basket analysis to reveal regularities in the purchase behaviour of customers. Moreover, recent work indicates that the discovery of interesting rules can in fact only be addressed within a microeconomic framework. This study integrates the discovery of frequent itemsets with a (microeconomic) model for product selection (PROFSET). The model enables the integration of both quantitative and qualitative (domain knowledge) criteria. Sales transaction data from a fullyautomated convenience store is used to demonstrate the effectiveness of the model against a heuristic for product selection based on product-specific profitability. We show that with the use of frequent itemsets we are able to identify the cross-sales potential of product items and use this information for better product selection. Furthermore, we demonstrate that the impact of product assortment decisions on overall assortment profitability can easily be evaluated by means of sensitivity analysis.
396 citations
Cites background from "An inventory-theoretic approach to ..."
...In the past, marketing researchers have attempted to construct optimisation models for more objective product selection [16, 27, 28] and shelf space allocation [6, 8, 11-16, 23, 27, 28]....
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TL;DR: A comprehensive survey of commonly used demand models which depend on price, rebate, lead time, space, quality, and quality, as well as game theoretic multifirm models involving strategic interaction among the firms.
Abstract: A variety of mathematical forms have been developed to characterize demand functions which depend on a firm's operational and marketing activities. Such demand functions are being increasingly used by researchers in economics and different functional areas of business. We provide a comprehensive survey of commonly used demand models which depend on (i) price, (ii) rebate, (iii) lead time, (iv) space, (v) quality, and (vi) advertising. Our survey includes single firm–demand models in each category, as well as game theoretic multifirm models involving strategic interaction among the firms. We observe that certain types of functional forms, such as linear, power/iso-elastic, multinomial logit, and multiplicative competitive interaction, have been widely used to construct various demand models in all six categories, but that a large majority of publications deal with categories (i) and (v) of demand models. For each of the six categories, we survey relevant functional forms in the representative papers, and discuss the main properties, the advantages, the disadvantages, and comment on possible future research directions. We also present discussions of the applications of these analytical demand models in empirical studies. The article ends with a summary of our major findings.
263 citations
TL;DR: A comprehensive overview of the literature on inventory control models in which the demand rate of an item is a function of the initial inventory level and those in which it is dependent on the instantaneous inventory level is presented.
223 citations
Cites background from "An inventory-theoretic approach to ..."
...…O p era tio n a l R esea rch 1 6 2 ( 2 0 0 5 ) 7 9 2 – 8 0 4 Mandal andMaiti (1997) Ray and Chaudhuri (1997) Urban and Baker (1997) Wu and Liu (1998) Urban (1998) Giri and Chaudhuri (1998) Ray et al. (1998) Datta et al. (1998) Mandal et al. (1998) Roy and Maiti (1998) Liu (1999) Mandal and Maiti…...
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...Current research has only begun to address related issues such as shelf-space allocation and product assortment (e.g., Urban, 1998, 2002), but has not yet addressed a number of relevant concerns, such as consumer behavior, which are only now beginning to be adequately addressed in the…...
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References
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Book•
01 Jan 1979
TL;DR: In this article, an in-depth discussion of the major decisions in production planning, scheduling, and inventory management faced by organizations, both private and public, is presented, as well as the latest systems used to make decisions, including Just-in-Time Manufacturing, KANBAN, Distribution Requirements Planning and PUSH Control.
Abstract: An in-depth discussion of the major decisions in production planning, scheduling, and inventory management faced by organizations, both private and public. Strategic and operational issues are covered, as well as the latest systems used to make decisions, including Just-in-Time Manufacturing, KANBAN, Distribution Requirements Planning, and PUSH Control. A series of cases focusing on one organization complement the text's discussion, and several problem sets are also included. An extensive list of references allows the advanced student to pursue topics of interest in more detail.
1,541 citations
TL;DR: In this article, a case study is used to estimate the parameters and the problem is solved within a geometrical programming framework, and an extensive comparison with alternative procedures suggests this general model leads to significantly different allocation rules and superior profit performance.
Abstract: The allocation of scarce shelf space among competing products is a central problem in retailing. Space allocation affects store profitability through both the demand function, where both main and cross space elasticities have to be considered, and through the cost function procurement, carrying and out-of-stock costs. A model is developed which uniquely incorporates both effects. A case study is used to estimate the parameters and the problem is solved within a geometrical programming framework. An extensive comparison with alternative procedures suggests this general model leads to significantly different allocation rules and superior profit performance.
404 citations
TL;DR: In this article, a continuous, deterministic case of an inventory system in which the demand rate of an item is of a polynomial functional form, dependent on the inventory level is analyzed.
Abstract: This analysis is concerned with the continuous, deterministic case of an inventory system in which the demand rate of an item is of a polynomial functional form, dependent on the inventory level. Differential and integral calculus are used to find the inventory function with respect to time. From this, the objective function (to maximize average profit per unit time) is developed. For the continuous, multiperiod situation, a non-linear programming algorithm—separable programming—is utilized to determine the optimal order level (the quantity to order up to) and the order point (the quantity at which an order is placed). A numeric example and a sensitivity analysis are also presented.
384 citations
TL;DR: In this paper, an order-level inventory model for deteriorating items with uniform rate of production and stock-dependent demand is developed, where shortages are allowed, and excess demand is backlogged.
Abstract: An order-level inventory model is developed for deteriorating items with uniform rate of production and stock-dependent demand. Shortages are allowed, and excess demand is backlogged. Results are illustrated with numerical examples.
306 citations
TL;DR: A serious gap exists between theory and practice in many organizations and a list of research problems whose implementable solution would have a major beneficial impact on the practice of inventory management is provided.
Abstract: The objectives of inventory management, including the relevant related costs, are examined in this paper. A brief review of standard problems, that have been effectively solved, is presented. However, we point out that a serious gap exists between theory and practice in many organizations. Suggestions are made for bridging this gap. Finally, a list is provided of a number of research problems whose implementable solution would have a major beneficial impact on the practice of inventory management.
305 citations