Research & Publications
Assortment and Inventory Decisions with Multiple Quality Levels
2013, forthcoming Annals of Operations Research
M. Mayorga, H. Ahn, G. Aydin
We consider the assortment and inventory decisions of a retailer under a locational consumer choice model where products can be diﬀerentiated both horizontally (e.g., color of a product) and vertically (e.g., quality of a product). The assortment and quantity decisions aﬀect customer choice and, hence, the demand and sales for each product. In this paper, we investigate two diﬀerent environments where product availability and assortment aﬀect consumer choice and demand in diﬀerent ways: make-to-order (MTO) and make-to-stock (MTS). In the MTO environment, customers order and purchase their most preferred product; that is, stockouts do not occur. In the MTS model, customers buy their most preferred product if it is in stock or do not buy if it is out of stock. In both environments we ﬁnd conditions under which it is optimal to carry assortments of only a single quality level. In the MTS case, we show that an assortment of mixed quality levels can be optimal only within a narrow range of parameters.
Mayorga, M., H. Ahn, and G. Aydin (2013), "Assortment and Inventory Decisions with Multiple Quality Levels," accepted for publication in Annals of Operations Research.
Assortment planning, inventory management, consumer choice models