A closed-loop approach to dynamic assortment planning

Victor Martínez de Albeniz

IESE Business School (BCN)

Fecha: viernes 14 de marzo de 2014

Hora: 11:00

Lugar: Sala Seminarios, Edificio Torretamarit

Abstract

Firms are constantly trying to keep the customers interested by refreshing their assortments. In industries such as fashion retailing, products are becoming short-lived and, without product introductions or in-store novelties, category sales quickly decrease. We model these dynamics by assuming that products lose their attractiveness over time and we let the firm enhance the assortment at a cost, for single or multiple categories. We characterize the optimal closed-loop policy that maximizes firm profits. When adjustment costs are linear in the attractiveness, we find that an assort-up-to policy is best: it is optimal to increase category attractiveness to a target level, which is independent of the current attractiveness. Furthermore, we develop heuristics to quickly determine good assort-up-to levels.  Finally, we show that a closed-loop approach is valuable compared to open-loop strategies, especially when there is significant uncertainty about the decay rate of products.

Víctor Martínez de Albéniz is associate professor in IESE’s Department of Production, Technology and Operations Management. He joined IESE in 2004 after earning a Ph.D. at the Operations Research Center of the Massachusetts Institute of Technology (MIT) and an engineering degree at École Polytechnique in France. His research focuses on supply chain management, where procurement, production and distribution decisions can help companies compete more successfully in the global arena. In particular, he has studied in depth procurement and supply issues, where a balanced sourcing portfolio can provide low cost, flexibility and innovation opportunities. More recently, he has worked on retail topics, especially in the fashion industry. He has published his work in journals such as Management Science, Operations Research, Manufacturing and Services Operations Management, or Production and Operations Management.In addition, Prof. Martínez de Albéniz teaches IESE courses on operations management, operations strategy and new product development, both at the executive and MBA levels. He has also taught regularly at MIT (http://blog.iese.edu/martinezdealbeniz/about/).      Paper: http://webprofesores.iese.edu/valbeniz/assrt_planning_final.pdf