Problem definition: In fashion retailing, the display of product inventory at the store is important to capture consumers’ attention. Higher inventory levels might allow more attractive displays and thus, increase sales in addition to avoiding stockouts. Academic/practical relevance: By knowing how inventory levels affect consumer choices, retailers can adjust their inventory levels so as to maximize sales or profits. Methodology: We develop a choice model where product demand is indeed affected by inventory and controls for product and store heterogeneity, seasonality, promotions, and potential unobservable shocks in each market. We empirically test the model with daily traffic, inventory, and sales data from a large retailer at the store-day-product level. Results: We find that the impact of inventory level on sales is positive and highly significant, even in situations of extremely high service level. The magnitude of this effect is large: each 1% increase in product-level inventory at the store increases sales by 0.62% on average. This supports the idea that inventory has a strong role in helping customers choose a particular product within the assortment. Managerial implications: We describe how a retailer should optimally decide its inventory levels within a category and describe the properties of the optimal solution. Applying such optimization to our data set yields consistent and significant revenue improvements compared with policies that ignore the impact of inventory on sales.

No abstract

This paper analyzes a decision process of planning transportation procurement for a distribution lane given limited information regarding future demand for transportation services and a specified commitment horizon for procurement contracts. In contrast to variants in which either full demand information or no demand information is known over the planning horizon, our work considers the value of demand visibility for a short horizon in the future (i.e., the value of partial information). Our work also considers a commitment horizon that is much shorter than the planning horizon. We show that the availability of partial information fundamentally changes the contracting policies in the presence of such commitment horizons, and if used optimally, this information can be highly valuable. Partial visibility of demand can increase the willingness of the decision maker to commit to contracts and expand the range of capacity levels selected in settings where the capacity level of a contract is a decision variable. We also identify settings in which the value of partial information is negligible, reducing the incentive of managers to acquire additional demand information for future periods. Finally, we show that with seasonal demand, information is leveraged by properly coordinating with expected demand shocks (e.g., Black Friday) using tailored strategies.

No abstract

Problem definition: We study the combined value of observing future demand realizations (partial demand visibility) and flexible capacity, two hedging mechanisms against demand uncertainty, when signing capacity contracts with short temporal commitment. Academic/practical relevance: With new technological innovations, short commitment contracts are found in dynamic environments like distribution, processing, and manufacturing, a trend likely to grow in the future. In contrast to classic procurement, where commitments are long, short commitments lead to new dynamics in which demand visibility allows companies to use flexible resources more efficiently by adapting to demand observations. Methodology: We incorporate flexible capacity and demand visibility simultaneously using a multiperiod newsvendor network model with two nodes that are supplied using dedicated and flexible capacity contracts with short temporal commitment. Results: The optimal commitment to capacity contracts adapts within bounds to the observed demand at each node. The ability to adapt to visible demand becomes more valuable when flexible capacity contracts are available. This allows us to show that demand visibility and flexible capacity can act as complements. Managerial implications: In contrast to conventional wisdom, when contracts have short commitment, companies can enhance the value of demand visibility if flexible capacity is also available as an option.