Optimal policies for inventory usage, production and pricing of fashion goods over a selling season

K. Kogan, U. Spiegel

Research output: Contribution to journalArticlepeer-review

20 Scopus citations

Abstract

A short selling season and highly uncertain demands prior to the season characterize production and selling of fashion goods. Once the season starts and demands turn up with a peak interest in the beginning, monopoly becomes under tremendous pressure to produce the required amount so as not to disappoint its customers. It motivates the monopoly to prepare significant inventories by the opening day. Unfortunately, even the most advanced techniques for demand forecasting are likely to induce either an overestimate or underestimate of the initial inventories. Both affect the monopoly's profit. Overestimation results in surplus, which may never be sold, and excessive inventory holding costs. Underestimation implies sales as well as customer loyalty losses. Given inventory level at the beginning of the selling season, we derive policies of handling this inventory, production capacity and product prices in order to maximize the profit and thus diminish the effect of inherent inaccuracy of initial inventory estimation of fashion goods. A case of bookstore management illustrates the effectiveness of the suggested strategies.

Original languageEnglish
Pages (from-to)304-315
Number of pages12
JournalJournal of the Operational Research Society
Volume57
Issue number3
DOIs
StatePublished - Mar 2006

Keywords

  • Control
  • Inventory
  • Optimization

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