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Manufacturing & Service Operations Management

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Introduction to Focused Issue: Retail Operations

Management
Marshall Fisher, Ananth Raman,

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Marshall Fisher, Ananth Raman, (2001) Introduction to Focused Issue: Retail Operations Management. Manufacturing & Service
Operations Management 3(3):189-190. https://doi.org/10.1287/msom.3.3.189.9892

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 Introduction to Focused Issue:
Retail Operations Management
Marshall Fisher • Ananth Raman
The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania, 19104-6364
Harvard Business School, Technology and Operations Management, Morgan Hall T11, Boston, Massachusetts 02163
R etailing is a vital sector of most modern econo-
mies. In the U.S. for example, retail business rep-
resents about 40% of the economy and is the largest
employer. Not only is retailing important in its own
right, retailers also have considerable influence over
decisions effecting the supply of raw materials, work
in process, and finished goods inventory in the entire
supply chain. Moreover, retailers have, in recent
years, been an important source of supply chain in-
novation. Just think of the impact that Wal-Mart has
had on Procter & Gamble and other consumer pack-
aged goods suppliers, and the way in which Amazon
was a catalyst for e-commerce.
The opportunity for retailers to apply principles
from operations management has never been greater.
Retailers have made substantial investments in infor-
mation technology; for example, U.S. retailers invest
in excess of $30 billion annually in information tech-
nology, primarily to capture, store, process, and
transmit sales and inventory data. While retailers rec-
ognize the value of the data they capture, most, as we
have argued elsewhere (see ‘‘Rocket Science Retailing
is Almost Here. Are You Ready?’’ Harvard Business
Review, July–August 2000), are far from fully exploit-
ing the data available to them. The CEO of a multi-
billion dollar retailer said to us, ‘‘retailers today are
awash in data but starved of information.’’ To enable
retailers to exploit their data better, much work needs
to be done to identify how retailers can leverage the
vast amounts of data that they have gathered over
time.
The papers in this issue offer some ways in which
retailers can apply the principles of operations man-
agement. Four of the five papers in this issue examine
how retailers can make better inventory, transporta-
tion, and assortment decisions. The fifth paper focus-
es on identifying the drivers of consumer loyalty in
1523-4614/01/0303/0189$05.00 MANUFACTURING & SERVICE OPERATIONS MANAGEMENT 䉷 2001 INFORMS
1526-5498 electronic ISSN Vol. 3, No. 3, Summer 2001, pp. 189–190
e-commerce and, hence, explores how retailers can
apply the principles of operations management to le-
verage their investments in Internet technology.
The first paper, ‘‘A Modeling Framework for Cate-
gory Assortment Planning’’ by Juin-Kuan Chong,
Teck-Hua Ho, and Christopher S. Tang, examines
how retailers can plan store-level assortment. First,
they introduce a ‘‘purchase incidence’’ model to pre-
dict the probability of an individual purchasing (or
not purchasing) from a given product category dur-
ing a shopping trip. Another model in the paper,
termed the ‘‘brand-share model,’’ predicts which
brand the customer chooses if a purchase occurs in
the particular category. Using data from food retail-
ing, the authors show that reconfiguring an assort-
ment can improve profits by approximately 25%.
Gerard Cachon (in ‘‘Managing a Retailer’s Shelf
Space, Inventory, and Transportation’’) examines the
impact of alternate truck dispatching policies on a re-
tailer’s shelf space, inventory holding, and backorder-
ing costs. Three policies are considered for dispatch-
ing trucks: a minimum quantity continuous review
policy, a full service periodic review policy, and a
minimum quantity periodic review policy. In the first
policy, a heuristic similar to the economic order quan-
tity is offered to choose the minimum quantity level
and is found to perform quite well in most cases. The
paper conducts an extensive numerical study and
shows that the continuous review policy performs
substantially better than the periodic review policies
when the warehouse-to-store leadtime is short.
The third paper, ‘‘Optimizing Inventory Replenish-
ment of Retail Fashion Products’’ by Marshall Fisher,
Kumar Rajaram, and Ananth Raman,1 considers the
1Editor’s-in-Chief note: This paper was reviewed using M&SOM’s
usual review process, using a Senior Editor and reviewers unknown
to and independent of Professors Fisher and Raman.
 FISHER AND RAMAN
Introduction to Focused Papers
problem of determining initial and replenishment or-
der quantities for a catalog retailer of fashion prod-
ucts. The paper models the sequence of inventory de-
cisions as a two-stage stochastic dynamic program,
proposes a heuristic, and establishes conditions un-
der which the heuristic yields optimal solutions. Ap-
plication of the heuristic to the catalog retailer’s op-
erations resulted in doubling profits at the company,
and provided management with the tools to quantify
the benefits associated with operational changes, such
as leadtime reduction.
The fourth paper, ‘‘Information and Inventory Re-
course for a Two-Market, Price-Setting Retailer’’ by
Nicholas C. Petruzzi and Maqbool Dada, develops a
solution procedure for identifying optimal inventory
and price for an extension of the newsvendor prob-
lem. In their problem, the newsvendor decides how
much to buy from a supplier in periods 1 and 2, and
the price to charge in period 1. Sales in period 1 are
used to update forecasts for period 2; the authors
model the impact of unobservable lost sales on the
censoring of information. Following the derivation of
updated forecasts, the retailer can carry over leftover
inventory from period 1 to period 2, discard some of
the merchandise that it had committed to carrying,
or purchase supplemental stock at a premium price.
190
The paper provides a method to solve this decision
problem by showing that the decision reduces to a
search for the optimal stocking factor in period 1, a
decision variable that is analogous to safety stock and
can be interpreted as the level of overstocking
planned by the firm.
In ‘‘Operational Drivers of Customer Loyalty in
Electronic Retailing: An Empirical Analysis of Elec-
tronic Food Retailers,’’ Gregory R. Heim and King-
shuk K. Sinha examine the relationship between con-
sumer loyalty and ‘‘order fulfillment’’ and ‘‘order
acquisition.’’ Order fulfillment is measured through
ease of return, product availability, and timeliness of
delivery, while order acquisition is measured through
Web site navigation, product information, and price.
Using data on customer satisfaction (with order pro-
curement and order fulfillment processes) and on
customer loyalty publicly available from a ‘‘BizRate’’
survey of electronic food retailing, the paper shows
that these fulfillment and acquisition variables effect
customer loyalty. The authors were also able to use
their analysis to order the variables in order of their
relative contribution towards improving customer
loyalty.
Marshall Fisher
Ananth Raman
Focused Issue Editors
MANUFACTURING & SERVICE OPERATIONS MANAGEMENT
Vol. 3, No. 3, Summer 2001