Estimating Substitution and Basket Effects in Retail Stores: Implications for Assortment Planning

2021 ◽  
Author(s):  
Vidya Mani ◽  
Douglas J. Thomas ◽  
Saurabh Bansal
Keyword(s):  
Operations Management ◽  
Service Level ◽  
Substitution Effects ◽  
Demand Model ◽  
Product Availability ◽  
Retail Chain ◽  
Purchase Incidence ◽  
Out Of Sample ◽  
Mnl Model ◽  
Absolute Percent Error

Many retailers are reducing store footprint and downsizing their assortments accordingly to improve store productivity. Some of the revenue for items removed from the assortment may be recouped by substitution, but also some of the revenue for items kept in the assortment may be lost due to basket abandonment. For a practical setting where baskets may contain any subset of items from thousands of products, estimating both substitution and basket effects is a challenge. To address this, we develop a demand model that combines a multinomial logit (MNL) model to estimate substitution within a subcategory and a purchase-incidence model to estimate basket retention. Using transaction and product availability data from 12 stores of an office supplies retail chain that were dramatically downsized from large- to small-format stores, we show that (i) storewide basket effects are substantial (our model with basket effects predicts out-of-sample transactions with mean absolute percent error (MAPE) of only 7% compared with 22% for a model with only substitution effects), (ii) poor service level can significantly exacerbate lost profit due to abandoned baskets at these stores, and (iii) consideration of the basket effect in assortment selection for the small stores can significantly improve basket retention and increase profits (by up to 16%) at these stores. This paper was accepted by Vishal Gaur, operations management.

Optimal Market-Integration Decisions by Policymakers: Modeling and Analysis of Agriculture Market Data

2021 ◽  
Author(s):  
Shivam Gupta ◽  
Saurabh Bansal
Keyword(s):  
Operations Management ◽  
Market Integration ◽  
Relative Size ◽  
Relative Price ◽  
The European Union ◽  
Demand Model ◽  
Modeling And Analysis ◽  
Complete Integration ◽  
Seed Market ◽  
Social Surplus

Policymakers often seek to integrate markets as a way to maximize social welfare. In this article, the authors consider the spectrum of all possible integration policies, from full isolation to complete integration, and characterize the socially optimal market integration, under general demands. They identify market conditions under which social surplus is indeed maximized at partial market integration. For the linear price-responsive demand model that is used extensively in the operations management literature, these conditions are identified as thresholds on (i) the relative size of the markets being integrated, and (ii) the relative price sensitivity of consumers in these markets. The authors then apply the model to the commercial seed market in the European Union (EU). Their analysis shows that socially optimal market integration for these countries provides a further improvement in the social surplus for the EU by 2.80%, relative to complete integration. Results show that policymakers should exercise caution in determining the extent to which markets are integrated.

scholarly journals An Inventory Model for Deteriorating Drugs with Stochastic Lead Time

2018 ◽  
Vol 15 (12) ◽  
pp. 2772 ◽  
Author(s):  
Jian Li ◽  
Lu Liu ◽  
Hao Hu ◽  
Qiuhong Zhao ◽  
Libin Guo
Keyword(s):  
Shelf Life ◽  
Inventory Management ◽  
Lead Time ◽  
Service Level ◽  
Inventory Model ◽  
Effective Management ◽  
Product Availability ◽  
Stochastic Lead Time ◽  
Random Lead Time ◽  
The Right

Inventory management of deteriorating drugs has attracted considerable attention recently in hospitals. Drugs are a kind of special product. Two characteristics of some drugs are the shorter shelf life and high service level. This causes hospitals a great deal of difficulty in inventory management of perishable drugs. On one hand, hospitals should increase the drug inventory to achieve a higher service level. On the other hand, hospitals should decrease the drug inventory because of the short shelf life of drugs. An effective management of pharmaceuticals is required to ensure 100% product availability at the right time, at the right cost, in good conditions to the right customers. This requires a trade-off between shelf-life and service level. In addition, many uncontrollable factors can lead to random lead time of drugs. This paper focuses on deteriorating drugs with stochastic lead time. We have established a stochastic lead time inventory model for deteriorating drugs with fixed demand. The lead time obeyed a certain distribution function and shortages were allowed. This model also considered constraints on service level, stock space and drug shelf life. Through the analysis of the model, the shelf life of drugs and service level were weighted in different lead time distributions. Empirical analysis and sensitivity analysis were given to get reach important conclusions and enlightenment.

scholarly journals ANALISIS KONSUMSI PANGAN BERBASIS PROTEIN HEWANI DI KABUPATEN LEBONG: PENDEKATAN MODEL AIDS (ALMOST IDEAL DEMAND SYSTEM)

2016 ◽  
Vol 15 (1) ◽  
pp. 101-110
Author(s):  
Melly Suryanty ◽  
. Reswita
Keyword(s):  
Price Elasticity ◽  
Price Change ◽  
Animal Protein ◽  
Demand System ◽  
Substitution Effects ◽  
Almost Ideal Demand System ◽  
Demand Model ◽  
Aids Model ◽  
Elasticity Of Demand ◽  
Income Elasticity Of Demand

This paper analyze the food consumtion base-on animal protein in Lebong. The study estimated a demand model for food base-on animal protein by using Almost Ideal Demand System (AIDS) model. It also estimated demand elasticities for different food items by the models.  The result show that the demand model for food-based on animal protein can be explained by AIDS models. The model is consistent with demand theory. The coefficient of determination show range from 12.59 percent to 29.36 percent. However, the homogenity test for restriction parameters have not been explained by the model.  The estimated own-price elasticity of demand for Chicken, Goldfish and Egg indicated that if the price fell by 10% then the demand for the items would increase by 2.72%, 6.82%, and 9.05%, respectively. It show that the items are inelastic and necessities goods.  The income elasticity of demand for Chicken, Goldfish and Egg were 1.000, 0.999, and 1.000, respectively. It shows that all commodities are normal goods.  The estimates of cross price elasticity indicate that substitution effects of price change were not quite strong. Key word: food consumption, animal protein, AIDS model.

Supply chain management and market responsiveness: a simulation study

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulqadir Rahomee Ahmed Aljanabi ◽  
Karzan Mahdi Ghafour
Keyword(s):  
Supply Chain ◽  
Lead Time ◽  
Supply And Demand ◽  
Service Level ◽  
Distribution Centers ◽  
Safety Stock ◽  
Content Type ◽  
Product Availability ◽  
Market Responsiveness ◽  
Number Of Customers

Purpose This study aims to provide a practical solution to the relationship between supply chain (SC) integration and market responsiveness (MR). A method is proposed to integrate SC and MR parameters, namely, product supply and demand in the context of low-value commodities (e.g. cement). Design/methodology/approach Simulation and forecasting approaches are adopted to develop a potential procedure for addressing demand during lead time. To establish inventory measurements (safety stock and reorder level) and increase MR and the satisfaction of customer’s needs, this study considers a downstream SC including manufacturers, depots and central distribution centers that satisfies an unbounded number of customers, which, in turn, transport the cement from the industrialist. Findings The demand during lead time is shown to follow a gamma distribution, a rare probability distribution that has not been considered in previous studies. Moreover, inventory measurements, such as the safety stock, depending on the safety factor under a certain service level (SL), which enables the SC to handle different responsiveness levels in accordance with customer requests. In addition, the quantities of the safety stock and reorder point represent an optimal value at each position to avoid over- or understocking. The role of SC characteristics in MR has largely been ignored in existing research. Originality/value This study applies SC flexibility analyzes to overcome the obstacles of analytical methods, especially when the production process involves probabilistic variables such as product availability and demand. The use of an efficient method for analyzing the forecasting results is an unprecedented idea that is proven efficacious in investigating non-dominated solutions. This approach provides near-optimal solutions to the trade-off between different levels of demand and the SC responsiveness (SLs) with minimal experimentation times.

The Effects of Sister-Store Presence and Market Competition on Product Assortment: Evidence from Book Retailing

2021 ◽  
Vol 13 (3) ◽  
pp. 155-171
Author(s):  
Tao Chen ◽  
Yu Jeffrey Hu ◽  
Mohammad Rahman ◽  
Jiong Sun
Keyword(s):  
Market Competition ◽  
Substitution Effects ◽  
Chain Store ◽  
Product Assortment ◽  
Retail Chain ◽  
Bookstore Chain

When consumers’ preferred products are not carried by the retail chain store they visit, they may switch to purchasing these products from nearby sister stores of the same chain or from nearby competing stores. Such within- and across-chain substitution effects are enhanced as store-level product assortment information becomes increasingly available to consumers. It is important for scholars and practitioners to understand the effect of sister-store presence and market competition on retail product assortment strategies. In this paper, we obtain store-level product assortment data from a nationwide bookstore chain and study how sister-store presence and market competition can have an impact on the retail chain’s product assortment. In addition, we explore how this impact differs for niche and popular products. Our results show that having at least one sister store nearby reduces product assortment and such effects are stronger for niche products although having a competing store nearby increases product assortment and such effects are stronger for popular products.

scholarly journals The Effect of Slot-Code Optimization in Warehouse Order Picking

10.5772/56803 ◽  
2013 ◽  
Vol 5 ◽  
pp. 20 ◽  
Author(s):  
Andrea Fumi ◽  
Laura Scarabotti ◽  
Massimiliano M. Schiraldi
Keyword(s):  
Operations Management ◽  
Material Handling ◽  
Handling Time ◽  
Critical Issue ◽  
Service Level ◽  
Future Research ◽  
Code Optimization ◽  
Manufacturing Companies ◽  
Location Strategies ◽  
The Impact

This work presents the effect, in terms of travel distance and material handling time reductions, of an optimal rather than a uniform item allocation in one-block picking warehouses, both with and without the use of a simple picking heuristic. Since developing efficient product-location strategies represents a critical issue in Operations Management, due to the impact on warehouse performance in terms of both service level and operation costs, this paper focuses on an effective quantification of obtainable travel time reductions, obtaining a significant result for manufacturing companies aiming to determine the most appropriate material handling resource configuration. Building on previous work on the effect of slot-code optimization on travel times in single/dual command cycles, the authors broaden the scope to include the most general picking case, thus widening the range of applicability and realising former suggestions for future research.

scholarly journals Analisis Persediaan untuk Menentukan Profit dan Tingkat Pelayanan dengan Metode Simulasi

2017 ◽  
Vol 10 (2) ◽  
Author(s):  
Rudy Santosa Sudirga
Keyword(s):  
Operations Management ◽  
Demand Uncertainty ◽  
Raw Materials ◽  
Simulation Method ◽  
Service Level ◽  
Service Levels ◽  
The Subject ◽  
Near Future ◽  
Research Analysis

<p>Research analysis of inventory to determine profit and service level in company X with simulation methods is very important to be done to determine the average profit, minimum profit, maximum profit, and service levels with demand uncertainty, which will occur at the company X, which is located in Pegangsaan 2, Kelapa Gading Permai, North Jakarta. The research objective with this simulation method is useful in the near future to determine the possibility of profit that happens, and the service level provided to customers. The long-term goal is to teach the way of solving the problem in inventory in operations management, which is taught in management courses at Bunda Mulia University. Results of this study in operations management were adequate for the subject of inventory, as the company can only provide a service level of 85%. However, the company has gained an average excellent daily profit of Rp 26.474.673. The result can be more effective and efficient if the company uses a planning software to plan and calculate raw materials inventory to satisfy daily customer’s demand.</p><p>Keywords: Inventory, Simulation, Average profit</p>

Multiproduct slot allocation heuristic to minimize storage space

2014 ◽  
Vol 42 (3) ◽  
pp. 172-186 ◽  
Author(s):  
Claudia Battista ◽  
Andrea Fumi ◽  
Luigi Laura ◽  
Massimiliano M. Schiraldi
Keyword(s):  
Operations Management ◽  
Material Handling ◽  
Critical Issue ◽  
Service Level ◽  
Future Research ◽  
Management Problem ◽  
Warehouse Management ◽  
Slot Allocation ◽  
Content Type ◽  
Vertex Colouring

Purpose – Since developing efficient product-location strategies represents a critical issue in operations management, due to its impact on warehouses performance in terms of both service level and operation costs, this paper aims to focus on possible improvements in the allocation of SKUs, numerically evaluating how these can lead to a reduction of both overall required warehouse space and material handling times. Design/methodology/approach – The undertaken approach focused on translating the warehouse management problem into a vertex colouring problem, modelling it as a multi-criteria problem and solving it through a properly modified algorithm. Findings – The heuristic validation on a real industrial case demonstrated its high optimization potential, and its benchmarking simulations showed performances significantly close to the best conceivable case. Indeed, though using a dedicated storage policy, the gained optimization value turned to be definitively close to the lower bound calculated through a randomized storage policy, which, differently from the proposed solution, must be inevitably supported by a warehouse management system software. Originality/value – This work presents an original multiproduct slot allocation heuristic developed by taking cue from vertex colouring problems and its pragmatic evaluation on a real industrial case; a benchmark with the randomized storage policy is also presented in order to underline the heuristic effectiveness and to point out possible future research opportunities.

scholarly journals Dynamic Learning and Pricing with Model Misspecification

2019 ◽  
Vol 65 (11) ◽  
pp. 4980-5000 ◽  
Author(s):  
Mila Nambiar ◽  
David Simchi-Levi ◽  
He Wang
Keyword(s):  
Price Elasticity ◽  
Operations Management ◽  
Dynamic Pricing ◽  
Contextual Information ◽  
Model Misspecification ◽  
Model Parameters ◽  
Demand Model ◽  
Dynamic Learning ◽  
Data Set ◽  
Performance Guarantees

We study a multiperiod dynamic pricing problem with contextual information, where the seller uses a misspecified demand model. The seller sequentially observes past demand, updates model parameters, and then chooses the price for the next period based on time-varying features. We show that model misspecification leads to a correlation between price and prediction error of demand per period, which, in turn, leads to inconsistent price elasticity estimates and hence suboptimal pricing decisions. We propose a “random price shock” (RPS) algorithm that dynamically generates randomized price shocks to estimate price elasticity, while maximizing revenue. We show that the RPS algorithm has strong theoretical performance guarantees, that it is robust to model misspecification, and that it can be adapted to a number of business settings, including (1) when the feasible price set is a price ladder and (2) when the contextual information is not IID. We also perform offline simulations to gauge the performance of RPS on a large fashion retail data set and find that is expected to earn 8%–20% more revenue on average than competing algorithms that do not account for price endogeneity. This paper was accepted by Serguei Netessine, operations management.

Drivers of retail on-shelf availability

2016 ◽  
Vol 46 (5) ◽  
pp. 516-535 ◽  
Author(s):  
Issam Moussaoui ◽  
Brent D. Williams ◽  
Christian Hofer ◽  
John A. Aloysius ◽  
Matthew A. Waller
Keyword(s):  
Supply Chain ◽  
Operations Management ◽  
Service Level ◽  
Journal Articles ◽  
Retail Operations ◽  
Inventory Theory ◽  
Underlying Assumption ◽  
Content Type ◽  
Advance Research ◽  
Leading Journals

Purpose – The purpose of this paper is to: first, provide a systematic review of the drivers of retail on-shelf availability (OSA) that have been scrutinized in the literature; second, identify areas where further scrutiny is needed; and third, critically reflect on current conceptualizations of OSA and suggest alternative perspectives that may help guide future investigations. Design/methodology/approach – A systematic approach is adopted wherein nine leading journals in logistics, supply chain management, operations management, and retailing are systematically scanned for articles discussing OSA drivers. The respective journals’ websites are used as the primary platform for scanning, with Google Scholar serving as a secondary platform for completeness. Journal articles are carefully read and their respective relevance assessed. A final set of 73 articles is retained and thoroughly reviewed for the purpose of this research. The systematic nature of the review minimizes researcher bias, ensures reasonable completeness, maximizes reliability, and enables replicability. Findings – Five categories of drivers of OSA are identified. The first four – i.e., operational, behavioral, managerial, and coordination drivers – stem from failures at the planning or execution stages of retail operations. The fifth category – systemic drivers – encompasses contingency factors that amplify the effect of supply chain failures on OSA. The review also indicates that most non-systemic OOS could be traced back to incentive misalignments within and across supply chain partners. Originality/value – This research consolidates past findings on the drivers of OSA and provides valuable insights as to areas where further research may be needed. It also offers forward-looking perspectives that could help advance research on the drivers of OSA. For example, the authors invite the research community to revisit the pervasive underlying assumption that OSA is an absolute imperative and question the unidirectional relationship that higher OSA is necessarily better. The authors initiate an open dialogue to approach OSA as a service-level parameter, rather than a maximizable outcome, as indicated by inventory theory.

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