Assortment and Inventory Planning Under Dynamic Substitution with MNL Model: An LP Approach and an Asymptotically Optimal Policy

• In Event: SUPPLY CHAIN MANAGEMENT: Retail Operations

Abstract

In this paper, we revisit the uncapacitated single-period joint assortment and inventory problem in the presence of stockout-based substitution (base model). We derive the optimal solution for the fluid problem via a sequence of LPs and provide structural analysis. Next, we show that this optimal solution is asymptotically optimal for the original stochastic problem. Beyond the base case, we consider two extensions: single-period problem and multi-period problem with general capacity constraints. We show that, the corresponding fluid models can be solved using modified LP sequences and that their optimal solutions are still asymptotically optimal for the original stochastic problems.

Authors

• Alys Liang, Stephen M. Ross School of Business

• Stefanus Jasin, Michigan Ross

• Joline Uichanco, Michigan Ross