The retail planning problem under demand uncertainty

George Georgiadis, Kumar Rajaram

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We consider the retail planning problem in which the retailer chooses suppliers and determines the production, distribution, and inventory planning for products with uncertain demand to minimize total expected costs. This problem is often faced by large retail chains that carry private-label products. We formulate this problem as a convex-mixed integer program and show that it is strongly NP-hard. We determine a lower bound by applying a Lagrangian relaxation and show that this bound outperforms the standard convex programming relaxation while being computationally efficient. We also establish a worst-case error bound for the Lagrangian relaxation. We then develop heuristics to generate feasible solutions. Our computational results indicate that our convex programming heuristic yields feasible solutions that are close to optimal with an average suboptimality gap at 3.4%. We also develop managerial insights for practitioners who choose suppliers and make production, distribution, and inventory decisions in the supply chain.

Original languageEnglish (US)
Pages (from-to)1200-1213
Number of pages14
JournalProduction and Operations Management
Volume22
Issue number5
DOIs
StatePublished - Sep 2013

Keywords

  • facility location
  • inventory management
  • nonlinear integer programming
  • retailing
  • stochastic demand

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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