Retail Assortment Optimization
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Date: 03-05-2009
Start Time:
1:00pm
End Time: 2:00pm
Speaker: Marshall Fisher, Wharton: University of Pennyslvania
Location: Calder Lounge
ABSTRACT
We consider the problem of choosing, from a set of N potential SKUs in a retail category, K SKUs to be carried at each store of a retail chain so as to maximize sales or a defined profit function. Assortments can vary by store, subject to a maximum number of different assortments. We describe an approach in which we view a SKU as a set of attribute values, use sales history of the SKUs currently carried by the retailer to estimate the demand for attribute values and from this, the demand for any potential SKU, including those not currently carried by the retailer. We also introduce a model of substitution behavior, estimate the parameters of this model and consider the impact of substitution in choosing assortments. We use maximum likelihood estimation to fit the parameters of our model and describe several alternative heuristics for choosing SKUs. We describe application of this approach to optimize assortments for two real examples, tires and snack foods, which produced sales lifts of 52% and 48% respectively. This is joint work with Ramnath Vaidyanathan, a PhD student in Operations and Information Management at Wharton.
BIO
Marshall Fisher is the UPS Professor of Operations and Information Management at the
Wharton School of the University of Pennsylvania and co-director of the Fishman-Davidson Center for Service and Operations Management. He holds an SB degree in electrical engineering, an MBA and a PhD in operations research, all from MIT. Dr. Fisher joined the faculty of the Wharton School in 1975. Prior to that was a systems engineer in the Boston Manufacturing and Distribution Sales office of IBM and on the faculty of the University of Chicago Graduate School of Business. He has also held visiting positions in the Department of Operations Research of Cornell University, the Graduate School of Management, Delft, The Netherlands, Shanghai Jiao Tong University and Harvard Business School. He served as president of the Institute of Management Science during 1988-89 and as departmental editor of Management Science from 1979 to 1983.
Dr. Fisher’s research during his 35 year career has focused on supply chain management, with a varying emphasis that has included private truck fleet scheduling, supply chain management for hard to predict fashion products and a scientific approach to retail buying. Dr. Fisher has been a consultant to many Fortune 500 companies, including Ahold, Air Products and Chemicals, BMG, Campbell Soup, Dupont, Exxon, Frito Lay, General Motors, IBM, Motorola, Nokia, Scott Paper and Spiegel, Inc., to name a few. In 1981, he co-founded Distribution Analysis, Research and Technology, Inc., a company that provided private truck fleet optimization software based on his research to major clients such as Frito Lay, Exxon and Anheuser Busch. He served as chairman of the board of directors of this company until its merger with Manugistics Inc. in 1990.
Dr. Fisher is a co-founder and Chairman of 4R Systems, Inc., a company that provides supply chain planning software to retailers of short lifecycle products. His research has been recognized by numerous awards, including the 1977 Lanchester prize for the best paper in operations research in that year, the 1983 Edelman Prize from the Institute of Management Science for the best application of management science in that year, the E. Grosvenor Plowman Award from the Council of Logistics Management for contributions to logistics, the 1995, 1996, 1997, 1998 and 1999 Wharton School MBA Core Curriculum Cluster Award for teaching excellence, the 2006 Philip McCord Morse Lectureship and the 2007 George E. Kimball Medal, in recognition of distinguished service to the profession of operations research and the management sciences. He is a member of the National Academy of Engineering and a Fellow of the Institute for Operations Research and the Management Sciences, the Production and Operations Management Society, and the Manufacturing and Service Operations Management Society. In 2004, his paper "The Lagrangian Relaxation Method for Solving Integer Programming Problems" published in Management Science in 1981 was voted by the membership of the Institute for Operations Research and Management Science as one of the ten most influential papers published in Management Science during its 50 year history. He is a member of the Visiting Committees of the Harvard Business School and the MIT Sloan School of Management.