A joint decision model of inventory control and promotion optimization based on demand forecasting

• Published in: 2009 IEEE International Conference on Automation and Logistics pp. 119 - 123
• Main Authors: Gao Jun-jun, Kang Ting
• Format: Conference Proceeding
• Language: English
• Published: IEEE 01.08.2009
• Subjects: Automation; Business; Demand forecasting; Inventory control; Inventory management; inventory replenishment; Logistics; Marketing and sales; Natural languages; Optimization methods; Predictive models; promotion optimization; two-stage optimization model
• ISBN: 9781424447947; 1424447941
• ISSN: 2161-8151
• DOI: 10.1109/ICAL.2009.5262965

We study the problem of jointly determining the promotion optimizing and inventory control of multiple beer product variants in a Chinese retail supermarket based on demand forecasting. We examine the joint effect of two modes of promotional policies: price discount and inventory stimulation. Under the demand with the price sensitivity, inventory sensitivity and randomness, we formulate a more practical two-stage joint optimization model of inventory control and promotion, in which the non-promotional optimal price and allocation of shelf-space of all kinds of products are calculated to achieve maximal profit in the first stage and then to find the optimal promotion brands under the assumptions of non-promoted brands still continue the pricing policy and shelf-space allocation policy in the second stage model. Also a numerical solving algorithm is proposed and an experimental example is given. Our experimental analysis reveals that the two-stage joint optimization model has good feasibility and robustness. The computational results also show that the appropriate inventory control strategies and promotional methods would achieve higher profit.