Optimizing Inventory Replenishment of Retail Fashion Products

Marshall Fisher; Kumar Rajaram; Ananth Raman

doi:10.1287/msom.3.3.230.9889

Optimizing Inventory Replenishment of Retail Fashion Products

Marshall Fisher¹; Kumar Rajaram²; Ananth Raman³

¹ The Wharton School, University of Pennsylvania, 3620 Locust Walk, 3207 SH-DH, Philadelphia, Pennsylvania 19104-6366 · ² University of California, Los Angeles, Anderson School of Management, Los Angeles, California 90095-1481 · ³ Harvard Business School, Soldiers Field, Boston, Massachusetts 02163

Manufacturing and Service Operations Management 2001

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.

DOI: 10.1287/msom.3.3.230.9889
Volume: 3 (3)
Pages: 230-241
Language: en
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Sources: crossref