OPTIMAL STOCKING OF RETAIL OUTLETS: THE CASE OF WEEKLY DEMAND PATTERN

Abstract

Retail stores sell products to consumers. Their ability to sell depends upon the availability of the plannedassortment, i.e. every item is on shelf so that the consumer can buy it. In particular, for fast moving consumergoods, like food, the consumer expects that each item is on stock. The retailer's decisions on the length ofreplenishment cycles of stores, on the shelf-capacity allocated to each item, on the amount of inventory stored inthe backroom of the store, on the minimum order quantity of each item, or on the case size affect the fill rate ofthe store.This paper identifies a new aspect: With a demand fluctuating regularly according to a weekly pattern, thedecision on which day to review inventory and to deliver stock has impact on the service level of the store. Itanalyzes the effect of the position of ordering cycles with respect to demand cycles on the out-of-stock rate. Wesimulate a retail scenario with different replenishment cycles, i.e. supermarkets with weekly seasonal demandcan be supplied at different days of the week. We show -based on actual sales data of supermarkets– that the fillratedepends heavily on the interaction between the weekly demand pattern and the inventory review andreplenishment cycle. Futhermore, we demonstrate the role of item's case size in the performance of the supplychain. Numerical results for a periodic review, order-up-to-level inventory control system with batch-orderingand time-varying demand are presented.

Keywords: inventory management, retail operations, periodic review inventory control, seasonal demand, batchordering,case pack quantity