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Activity Number:
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200
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Type:
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Contributed
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Date/Time:
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Monday, July 30, 2007 : 2:00 PM to 3:50 PM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #309091 |
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Title:
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Assortment Planning Under Dynamic Customer Substitution and Cross-Selling
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Author(s):
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Jin Dong*+ and Xinxin Bai and Wen Jun Yin and Ming Xie
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Companies:
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IBM China Research Laboratory and IBM China Research Laboratory and IBM China Research Laboratory and IBM China Research Laboratory
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Address:
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Building 19 Zhongguancun Software Park, Beijing, 100094, China
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Keywords:
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Assortment Optimization ; Dynamic Programming ; Cross-selling ; Substitution
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Abstract:
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Assortment planning is a process for retailers to decide which types of products to stock and the inventory level for each item. Demand substitution and cross-selling effect in customer service are the factors that influence the joint optimal choice. We formulate a single-period, state-dependent model to maximize the expected profit for retailers, in which customers dynamically purchase items with stochastic substitution and cross-selling behavior. The model is subject to given resources and service level constraints. Based on customer transaction databases, approaches are introduced to predict the initial demand and the possibilities for the next product to be chosen. Finally, numerical examples are presented to compare the optimal inventory strategies to those of traditional newsboy model and practical suggestion on assortment planning is then given.
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