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

Abstract

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.