Focused Issue:

"Retail Operations Management"


Title: Managing a Retailer’s Shelf Space, Inventory and Transportation

Author(s): Gerard Cachon

Special Interest: Retail Operations Management

Abstract: Retailers must constantly strive for excellence in operations; extremely narrow profit margins leave little room for waste and inefficiency.  This paper studies a retailer’s challenge to balance transportation, shelf space and inventory costs. A retailer sells multiple products with stochastic demand. Trucks are dispatched from a warehouse and arrive at a store with a constant lead-time. Each truck has a finite capacity and incurs a fixed shipping cost, no matter the number of units shipped. There is a per unit shelf space cost as well as holding a backorder penalty costs. Three policies are considered for dispatching trucks: a minimum quantity continuous review policy, a full service periodic review policy and a minimum quantity periodic review policy. The first policy ships a truck when demand since the previous shipment equals a fixed fraction of a truck’s capacity, i.e., a minimum truck utilization. The exact analysis of that policy is the same as the analysis of reorder point policies for the multi-echelon problem with one-warehouse, multiple retailers and stochastic demand. That analysis is not computationally prohibitive, but the minimum quantity level can be chosen with a simple Economic Order Quantity (EOQ) heuristic. An extensive numerical study finds the following: either of the two periodic review policies may have substantially higher costs than the continuous review policy, in particular when the warehouse to store lead time is short; the EOQ heuristic performs quite well; the minimum quantity policy’s total costs is relatively insensitive to the chosen transportation utilization and its total cost is close to a lower bound developed for this problem.

The Consulting Senior Editors were Marshall Fisher and Ananth Raman

The manuscript was submitted on June 7, 1999, subject to two reviews with 111 days in revision. The average review cycle time was 97.5 days.

Corresponding author: Gerard Cachon, University of Pennsylvania, The Wharton School, Operations Management, 1300 SH/DH, Philadelphia, PA 19104. Phone: 215-573-8743. E-mail: cachon@wharton.upenn.edu


Title: Information and Inventory Recourse for a Two-Market, Price-Setting Retailer

Author(s): Nicholas Petruzzi and Maqbool Dada

Special Interest: Retail Operations Management

Abstract: We analyze the problem of determining inventory and pricing decisions in a two-period retail setting when an opportunity to refine information about uncertain demand is available. The model extends the newsvendor problem with pricing by allowing for multiple suppliers, the pooling of procurement resources, and more general information dynamics. One contribution is the solution procedure: we show that all decisions (up to seven in all, including recourse decisions) can be determined uniquely as a function of a surrogate first-period decision called the stocking factor. Hence, the two-period decision problem with recourse reduces to a search for one decision variable. A second contribution is the policy implications: we find that the cost of learning is:

  1. a consequence of censored information because, on the margin, learning is free if full information is guaranteed
  2. measured in the form of an increased stocking factor
  3. shared with the consumer in the form of a higher selling price when demand uncertainty is additive.

A third contribution is the application of the results to three motivating examples: A market research problem in which a product is introduced in a test market prior to a widespread launch; a global newsvendor problem in which a seasonal product is sold in two different countries with non-overlapping selling seasons; and a minimum-quantity commitment problem in which procurement resources for multiple purchases may be pooled.

The Consulting Senior Editors were Marshall Fisher and Ananth Raman

The manuscript was submitted on October 29, 1999, subject to two reviews with 103 days in revision. The average review cycle time was 76.5 days.

Corresponding author: Nicholas Petruzzi, University of Illinois, Department of Business Administration, 350 Commerce West Building, 1206 South Sixth Street, Champaign, IL 61820. Phone: 217-333-9578. E-mail: petruzzi@uiuc.edu


Title: Optimizing Inventory Replenishment of Retail Fashion Products

Author(s): Marshall Fisher, Kumar Rajaram, and Ananth Raman

Abstract: We consider the problem of determining for a short life-cycle retail product initial and replenishment order quantities that minimize the cost of lost sales, back orders and obsolete inventory. We model the 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 improved on the existing method by enough to double profits. In addition, our method can be used to choose the optimal reorder point, quantify the benefit of lead-time reduction and choose the best replenishment contract.

The Consulting Senior Editor was Gary Eppen.

The manuscript was submitted on March 22, 2000, subject to four reviews with 313 days in revision. The average review cycle time was 46 days.

Corresponding author: Marshall Fisher, University of Pennsylvania, The Wharton School, Operations & Information Management, 3620 Locust Walk, 3207 SH/DH, Philadelphia, PA 19104-6366. Phone: 215-898-7721. Fax: 215-573-7384. E-mail: fisher@wharton.upenn.edu


Title: Operational Drivers of Customer Loyalty in Electronic Retailing: An Empirical Analysis of Electronic Food Retailers

Author(s): Kingshuk Sinha and Gregory Heim

Abstract: The relationship between customer loyalty and the order procurement and order fulfillment processes of electronic retailers is empirically examined in this paper. The study sample contains data from 52 electronic food retailers.  After controlling for the retailers' product categories based on design flexibility, or regression analysis results indicate that three order procurement variables: web site navigation, product information, and price, and three order fulfillment variables: product availability, timeliness of delivery, and ease of return have significant association with customer loyalty.  In terms of their relative contributions toward improving customer loyalty, these variables can be ordered in a descending order as follows: ease of return, timeliness of delivery, web site navigation, product availability, price, and product information.

The Consulting Senior Editors were Marshall Fisher and Ananth Raman.

The manuscript was submitted on July 13, 2000, subject to three reviews with 326 days in revision. The average review cycle time was 29.3 days.

Corresponding author: Kingshuk Sinha, Carlson School of Management, University of Minnesota, 3-140 CarlSMgmt Building, 321 19th Avenue, South Minneapolis, MN 55455-0413 Phone: 612-624-7010. Fax: 612-626-8328. E-mail: ksinha@csom,umn.edu


Title: A Model Framework for Category Assortment Planning

Author(s): Christopher Tang, Juin-Kuan Chong, Teck Ho

Abstract: Category managers face a persistent and crucial challenge: how to select an assortment for a product category in order to maximize its total profit. This assortment decision is non-trivial because it is often constrained by limited shelf-space and requires an understanding of how consumers perceive products and brands in the category. In this paper, we develop an econometric model for assisting category managers to make this important decision. In this model, we represent a brand as a ‘tree’ and use it to generate three brand configuration measures in order to capture its degree of assortment. Using these brand configuration measures, we build a brand share model that extends the classical Guadagni and Little’s model.

We calibrate our brand share model using data from eight food categories. We show that our model is superior to Guadagni and Little’s model in terms of descriptive fit and predictive power. We demonstrate the usefulness of the model in two retail applications. First, using cost and shelf facing data collected at a retailer store, we show how our model can be used to reconfigure a product category for profit enhancement. Second, we apply the model to assess the level of lost sales as a result of brand reconfiguration. We believe our model can be a useful planning tool for making important product assortment decisions at a retail store.

Keywords: Retailing, Brand Share, Brand Reconfiguration, Logit Model.

The Consulting Senior Editors were Marshall Fisher and Ananth Raman.

The manuscript was submitted on January 25, 2000, subject to four reviews with 339 days in revision. The average review cycle time was 61.25 days.

Corresponding author: Christopher Tang, UCLA, Anderson Graduate School of Management, 110 Westwood Plaza, Box 951481, Los Angeles, CA 90095-1481. Phone: 310-825-4203. Fax: 310-206-3337. E-mail: ctang@agsm.ucla.edu


Title: Consequences of Order Crossover Under Order-Up-To Inventory Policies

Author(s): Lawrence Robinson, James Bradley, L. Joseph Thomas

Abstract: “Order crossover” occurs whenever replenishment orders do not arrive in the sequence in which they were placed. This paper argues that order crossover is becoming more prevalent and analyzes the dangers of ignoring them. We present an exact iterative algorithm for calculating the distributions of the inventory shortfall (the quantity of outstanding orders at the start of a period) and the more-common lead-time demand, which are different when order crossover is possible. The lead-time demand distribution can have much higher variability and fatter tails than the shortfall distribution. We provide several examples where setting inventory policies based on the lead-time demand distribution rather than the shortfall distribution leads to significantly worse cost performance. We show that the cost penalty of ignoring the possibility of order crossover can be significant, even if the probability is small. An alternative proof to that of Zalkind (1978), showing that the variance of shortfall is less than the variance of the standard lead-time demand, is given in the appendix.

The Consulting Senior Editor was Steven Nahmias

The manuscript was submitted on September 27, 2000, subject to three reviews with 140 days in revision. The average review cycle time was 68 days.

Corresponding author: Lawrence Robinson, Cornell University, Johnson Graduate School of Management, 433 Sage Hall, Ithaca, NY 14853-4201. Phone: 607-255-4721. Fax: 607-254-4590. E-mail: lwr2@cornell.edu.


Copies of these published papers may be downloaded from Informs Online