Optimization of transshipment, markdown, and return decisions at fast fashion retailing

Official URL: https://risc01.sabanciuniv.edu/record=b2486615_(Table of contents)

Due to its effect on profit, costs, and service levels, supply chain management has played a critical role in the fashion industry. A high degree of demand uncertainty makes it hard to respond to the customers’ needs. Customers require wider product variety and higher levels of responsiveness at lower prices. These enforce the retailers to utilize supply chain management strategies that enable them to satisfy their customers’ needs. Still, it is inevitable to stock-out or to have excess inventory as a result of mismanagement of available resources. While stock-outs affect the service level and cause lost sales, excess inventory is sold with reduced prices at lower profit margins at the end of the selling season. Thus, to overcome these challenges, supply chain decisions have to be made effectively. Transshipment, markdown, and return decisions are among the critical decisions of the fashion supply chain. The problem of reallocating the available inventory of the stores among each other to decrease the chances of stock-out and excess inventory is called the transshipment problem. After allocating the initial inventory to the stores according to the predicted demand, the forecast may be updated in the light of new market information. Transshipment re-balances the inventories of the stores based on the updated demand forecast. Return, however, is the problem of deciding the products, which will be surplus at the end of the products’ life cycle, to be sent to the retailer’s warehouse. Finally, markdown is another tool adopted by retailers to accelerate the offloading of slowmoving products. In this dissertation, we study these three problems motivated by the logistics operations of a fast fashion retailer in Turkey. Similar to any other real world originated fashion supply chain problem, business rules have to be considered. First, we study the transshipment problem and consider specific operational restrictions. Second, we extend the transshipment problem by considering markdown and return decisions respecting the business rules. Next, we consider the effect of price on the sales of products. We proposed Simulated Annealing metaheuristic, a Lagrangian relaxation-based, and a Benders decomposition-based heuristics to solve these problems efficiently