Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales

Marshall Fisher and Ananth Raman
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Marshall Fisher: University of Pennsylvania, Philadelphia, Pennsylvania
Ananth Raman: Harvard University, Boston, Massachusetts

Operations Research, 1996, vol. 44, issue 1, 87-99

Abstract: Traditionally, fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available. Under a Quick Response system, lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand. We model and analyze the decisions required under Quick Response and give a method for estimating the demand probability distributions needed in our model. We applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60%. Relative to the cost that would have been incurred if no response were used, optimized response reduces cost by enough to roughly quadruple profits.

Keywords: cost analysis: accurate response; forecasting: applications; industries: textiles/apparel (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (280)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:44:y:1996:i:1:p:87-99

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