Optimal product replacement with cross-item effects
Manuel Moran-Pelaez1, Georgia Perakis2, Tamar Cohen-Hillel3
1Operations Research Center, MIT; 2Sloan School of Management, MIT; 3Sauder School of Business, UBC
In this work, we study the product replacement problem. This problem arises in the fast fashion industry, where the company's headquarters frequently send new items to stores, expecting store managers to remove current items to make room for the new items and display them. Our study addresses a general case, including misaligned incentives among decision-makers and cross-item effects. We present optimal strategies for the headquarters, but also investigate different store managers' behaviors.