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Optimal policies for inventory usage, production and pricing of fashion goods over a selling season

Author

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  • K Kogan

    (Bar-Ilan University)

  • U Spiegel

    (Bar-Ilan University
    University of Pennsylvania)

Abstract

A short selling season and highly uncertain demands prior to the season characterize production and selling of fashion goods. Once the season starts and demands turn up with a peak interest in the beginning, monopoly becomes under tremendous pressure to produce the required amount so as not to disappoint its customers. It motivates the monopoly to prepare significant inventories by the opening day. Unfortunately, even the most advanced techniques for demand forecasting are likely to induce either an overestimate or underestimate of the initial inventories. Both affect the monopoly's profit. Overestimation results in surplus, which may never be sold, and excessive inventory holding costs. Underestimation implies sales as well as customer loyalty losses. Given inventory level at the beginning of the selling season, we derive policies of handling this inventory, production capacity and product prices in order to maximize the profit and thus diminish the effect of inherent inaccuracy of initial inventory estimation of fashion goods. A case of bookstore management illustrates the effectiveness of the suggested strategies.

Suggested Citation

  • K Kogan & U Spiegel, 2006. "Optimal policies for inventory usage, production and pricing of fashion goods over a selling season," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(3), pages 304-315, March.
  • Handle: RePEc:pal:jorsoc:v:57:y:2006:i:3:d:10.1057_palgrave.jors.2602022
    DOI: 10.1057/palgrave.jors.2602022
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    References listed on IDEAS

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    Cited by:

    1. S Banerjee & N S Meitei, 2010. "Effect of declining selling price: profit analysis for a single period inventory model with stochastic demand and lead time," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(4), pages 696-704, April.
    2. Avi Herbon & Konstantin Kogan, 2014. "Time-dependent and independent control rules for coordinated production and pricing under demand uncertainty and finite planning horizons," Annals of Operations Research, Springer, vol. 223(1), pages 195-216, December.
    3. Hsu, P.H. & Wee, H.M. & Teng, H.M., 2010. "Preservation technology investment for deteriorating inventory," International Journal of Production Economics, Elsevier, vol. 124(2), pages 388-394, April.
    4. Namin, Aidin & Soysal, Gonca P. & Ratchford, Brian T., 2022. "Alleviating demand uncertainty for seasonal goods: An analysis of attribute-based markdown policy for fashion retailers," Journal of Business Research, Elsevier, vol. 145(C), pages 671-681.
    5. Qi Chen & Qi Xu & Wenjie Wang, 2019. "Optimal Policies for the Pricing and Replenishment of Fashion Apparel considering the Effect of Fashion Level," Complexity, Hindawi, vol. 2019, pages 1-12, February.
    6. Kogan, Konstantin & Herbon, Avi, 2022. "Retailing under panic buying and consumer stockpiling: Can governmental intervention make a difference?," International Journal of Production Economics, Elsevier, vol. 254(C).
    7. Jin Zhao & Qi Xu, 2024. "Pricing and Inventory Decisions for the Apparel Industry under a Carbon Neutrality Target with Green Investments and Recycling Efforts," Sustainability, MDPI, vol. 16(14), pages 1-25, July.

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    Keywords

    optimization; inventory; control;
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