Issue Date
11-2025
Abstract
Ensuring a sufficient inventory level at the retail stage of the supply chain is essential to meet customer demand. However, determining the ideal quantity of products to be ordered by a retailer is challenging when there is a substitution of products. This study addresses the occurrence of customers substituting products in the store in case of product unavailability by developing a two- phase stochastic optimization model. The first phase created a discretized demand profile, one of the novelties of this study, that allows customers to substitute up to two attempts. The second phase developed a mixed-integer program (MIP) model that follows a fixed order interval (FOI) model in replenishing inventory. The objective function of the model is to maximize the retailer’s profit, considering different costs to provide the optimal order quantity per product considered. The model also highlights penalties for unmet demand that reflect the customer’s goodwill and policy for ordering products in multiples. Moreover, the model is applied through a case study and was compared with the results where there are no considerations of substitution occurrences. In the case study, sensitivity analyses were also conducted, which showed that the model reacts objectively under changing parameters. In conclusion, the model developed in this study not only focuses on optimizing the retailer's profit but also places significant value on customer satisfaction.
Source or Periodical Title
UP Los Baños Journal
ISSN
0117-1461
Volume
23
Issue
2
Page
32-59
Document Type
Article
College
College of Engineering and Agro-Industrial Technology (CEAT)
Language
English
Subject
Multi-level substitution, Inventory management, Retail assortment, Demand modelling
Recommended Citation
Guiao, Gian Paolo G.; De Leon, Gabriel John L.; Punongbayan, John Kenneth P.; Baldoz, Kathleen L.; Pasion, Ven-Rem Bill A.; and Ani, Angelo C., "Inventory assortment model for retailers with multi-level substitution of products" (2025). Journal Article. 6420.
https://www.ukdr.uplb.edu.ph/journal-articles/6420