An integrated assortment and shelf-space optimization model with demand substitution and space-elasticity effects

Alexander Hübner and Kai Schaal

European Journal of Operational Research, 2017, vol. 261, issue 1, 302-316

Abstract: Retailers must define their assortments and assign shelf space to the items included in these assortments. These two planning problems are mutually dependent if space is scarce. We formulate a model that maximizes a retailer’s profit by selecting the optimal assortment and assigning limited shelf space to items. This model is the first decision model to integrate assortment and shelf-space planning by considering stochastic and space-elastic demand, out-of-assortment and out-of-stock substitution effects. To solve the model, we develop a specialized heuristic that efficiently yields near-optimal results, even for large-scale problems. We show that our approach outperforms alternative approaches, e.g. a sequential planning approach that first picks assortments and then assigns shelf space by up to 18%, and a greedy algorithm by up to 16% in terms of profit.

Keywords: Retailing; Heuristic; Substitution; Space elasticity; Stochastic demand (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:261:y:2017:i:1:p:302-316

DOI: 10.1016/j.ejor.2017.01.039

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