Joint assortment and inventory optimization for vertically differentiated products under consumer-driven substitution

Sandra Transchel, Marjolein E. Buisman and Rene Haijema

European Journal of Operational Research, 2022, vol. 301, issue 1, 163-179

Abstract: This paper presents a solution approach to the joint assortment and inventory planning problem for vertically differentiated products considering dynamic consumer-driven substitution. The demand for each product and the stockout-based substitution rates are derived from a consumer’s utility function and a random market size. We propose a two-step integral solution approach, which uses the substitution characteristic of vertically differentiated products. In a first step, the approach determines the initial purchasing probabilities of all potential products and the substitution rate matrices for all possible product-availability combinations. In a second step, the inventory levels are determined by iteratively solving a sequence of two-product problems.

Keywords: Assortment plannning; Multi-product inventory planning; Stockout-based substitution; Discrete choice model (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:301:y:2022:i:1:p:163-179

DOI: 10.1016/j.ejor.2021.09.041

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