In this paper, we develop an optimal shelf-space stocking policy when demand, in addition to the exogenous uncertainty, is influenced by the amount of inventory displayed (supply) on the shelves. Our model exploits stochastic dominance condition; and, we assume that the distribution of realized demand with higher stocking level stochastically dominates the distribution of realized demand with lower stocking level. We show that the critical fractile with endogenous demand may not exceed the critical fractile of the classical newsvendor model. Our computational results validate the optimality of amount of units stocked on the retail shelves. © 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS). All rights reserved.

R K Amit

Department of Management Studies

Stochastic systems

Uncertainty analysis

Computational results

CRITICAL FRACTILE

Demand uncertainty

DISPLAYED INVENTORY

NEWSVENDOR MODELS

NEWSVENDORS

Stochastic dominance

uncertainty modeling

Stochastic models

IIT Madras is a public technical and research university located in Chennai, Tamil Nadu. Founded in 1959, it is recognised as an Institute of National Importance.

IIT Madras has been ranked as the top engineering institute in India for four years in a row by the National Institutional Ranking Framework of the MHRD

It currently offers undergraduate, postgraduate and research degrees across 16 disciplines in Engineering, Sciences, Humanities and Management. About 596 faculty belonging to science and engineering departments and centres of the Institute are engaged in teaching, research and industrial consultancy.

IIT Madras

European Journal of Operational Research

Risk neutral assumption in the newsvendor problem under recourse option predicts the order quantity insensitive to the selling price; and, risk aversion modeled through common utility functions gives decreasing order quantity with increasing selling price. In this paper, we consider loss aversion to model the choice preference of the decision maker in the newsvendor problem under recourse option, and prove that loss aversion predicts the rational ordering behavior of the newsvendor with respect to the changes in price and cost parameters. Further, we find that loss aversion can significantly improve the performance of utility function based models in predicting the rational behavior. We extend the analysis to a supply chain setting and establish coordinating contract between a loss averse retailer facing a newsvendor problem and a risk neutral supplier under recourse option. We find that the contract parameter does not depend on the loss aversion; hence, the same contract can be implemented with retailers with different levels of loss aversion. © 2017 Elsevier B.V.

Loss aversion and rationality in the newsvendor problem under recourse option

In this paper, we consider a supply chain coordination problem when demand faced by a retailer is influenced by the amount of inventory displayed on the retail shelf. We assume that shelf space inventory is used as one of the levers to stimulate demand. Our objective in this research is to design individually rational contracts that coordinate the supply chain when the retailer faces inventory-level-dependent demand. We consider a buyback contract where any leftover inventory at the retailer can be returned to the supplier at a pre-specified terms of the buyback contract. The existing buyback contracts in the supply chain coordination literature do not guarantee the satisfaction of individual rationality constraint. A continuum of buyback contracts coordinate the supply chain. The contracts may differ on the basis of division of profits resulting in contracts that may not be individually rational. This motivates us to use the Shapley value from the cooperative game theory which ensures fairness and individual rationality in the buyback contract. We also provide managerial insights into the design of the contracts and analyze the impact of shelf space inventory on the contract parameters. © 2012 Elsevier B.V.

International Journal of Production Economics

Individually rational buyback contracts with inventory level dependent demand

Manufacturing & Service Operations Management

Integrating the Promotional and Service Roles of Retail Inventories

A joint optimisation model for inventory replenishment, product assortment, shelf space and display area allocation decisions

Management Science

“Stack Them High, Let ’em Fly”: Lot-Sizing Policies When Inventories Stimulate Demand

Journal of Retailing

Shelf management and space elasticity

Optimal shelf-space stocking policy using stochastic dominance under supply-driven demand uncertainty

Journal	Data powered by TypesetEuropean Journal of Operational Research
Publisher	Data powered by TypesetElsevier
ISSN	03772217
Open Access	No