Inventory Management of a Fast-Fashion Retail Network

Operations Research, Vol. 58, No. 2, pp. 257-273, 2010

MIT Sloan Research Paper No. 4656-07

Posted: 24 May 2010

See all articles by Felipe Caro

Felipe Caro

University of California, Los Angeles - Anderson School of Management

Jérémie Gallien

London Business School

Date Written: August 2, 2007

Abstract

Working in collaboration with Spain-based retailer Zara, we address the problem of distributing, over time, a limited amount of inventory across all the stores in a fast-fashion retail network. Challenges specific to that environment include very short product life cycles, and store policies whereby an article is removed from display whenever one of its key sizes stocks out. To solve this problem, we first formulate and analyze a stochastic model predicting the sales of an article in a single store during a replenishment period as a function of demand forecasts, the inventory of each size initially available, and the store inventory management policy just stated. We then formulate a mixed-integer program embedding a piecewise-linear approximation of the first model applied to every store in the network, allowing us to compute store shipment quantities maximizing overall predicted sales, subject to inventory availability and other constraints. We report the implementation of this optimization model by Zara to support its inventory distribution process, and the ensuing controlled pilot experiment performed to assess the model’s impact relative to the prior procedure used to determine weekly shipment quantities. The results of that experiment suggest that the new allocation process increases sales by 3% to 4%, which is equivalent to $275 M in additional revenues for 2007, reduces transshipments, and increases the proportion of time that Zara’s products spend on display within their life cycle. Zara is currently using this process for all of its products worldwide.

Keywords: inventory management, retail network

Suggested Citation

Caro, Felipe and Gallien, Jérémie, Inventory Management of a Fast-Fashion Retail Network (August 2, 2007). Operations Research, Vol. 58, No. 2, pp. 257-273, 2010; MIT Sloan Research Paper No. 4656-07. Available at SSRN: https://ssrn.com/abstract=1615064

Felipe Caro (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Jérémie Gallien

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://faculty.london.edu/jgallien/

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