This research will investigate the form of the optimal policies and will be used to gain insights into the impact of product variety and pricing on inventory control and supply chain management. The first component of this project is research on inventory control and assortment planning. The basic problem considered here is the following. A retailer sells a set of related and very similar items. The items have identical purchase costs and selling prices.
Customers arriving at a store select an item from the set to purchase.
Customers can rank the items in order of preference, including the option of not purchasing anything. Not all customers will be willing to substitute, however. Obviously, the willingness to substitute will impact the desired inventory levels for the variants in the line. The problem is to determine how much inventory to hold of each of the items. The result is clearly a function of the preferences of the customers.