Retail Supply Chain Management: Quantitative Models and Empirical Studies (International Series in Operations Research &

Retail Supply Chain Management Early Titles in the INTERNATIONAL SERIES IN OPERATIONS RESEARCH & MANAGEMENT SCIENCE Frederick S. Hillier, Series Editor, Stanford University Saigal/ A MODERN APPROACH TO LINEAR PROGRAMMING Nagurney/ PROJECTED DYNAMICAL SYSTEMS & VARIATIONAL IN- EQUALITIES WITH APPLICATIONS Padberg & Rijal/ LOCATION, SCHEDULING, DESIGN AND INTEGER PROGRAMMING Vanderbei/ LINEAR PROGRAMMING Jaiswal/ MILITARY OPERATIONS RESEARCH Gal & Greenberg/ ADVANCES IN SENSITIVITY ANALYSIS & PARA- METRIC PROGRAMMING Prabhu/ FOUNDATIONS OF QUEUEING THEORY Fang, Rajasekera & Tsao/ ENTROPY OPTIMIZATION & MATHEMATI- CAL PROGRAMMING Yu/ OR IN THE AIRLINE INDUSTRY Ho & Tang/ PRODUCT VARIETY MANAGEMENT El-Taha & Stidham/ SAMPLE-PATH ANALYSIS OF QUEUEING SYSTEMS Miettinen/ NONLINEAR MULTIOBJECTIVE OPTIMIZATION Chao & Huntington/ DESIGNING COMPETITIVE ELECTRICITY MARKETS Weglarz/ PROJECT SCHEDULING: RECENT TRENDS & RESULTS Sahin & Polatoglu/ QUALITY, WARRANTY AND PREVENTIVE MAINTENANCE Tavares/ ADVANCES MODELS FOR PROJECT MANAGEMENT Tayur, Ganeshan & Magazine/ QUANTITATIVE MODELS FOR SUPPLY CHAIN MANAGEMENT Weyant, J./ ENERGY AND ENVIRONMENTAL POLICY MODELING Shanthikumar, J.G. & Sumita, U./ APPLIED PROBABILITY AND STO- CHASTIC PROCESSES Liu, B. & Esogbue, A.O./ DECISION CRITERIA AND OPTIMAL INVEN- TORY PROCESSES Gal, T., Stewart, T.J., Hanne, T. / MULTICRITERIA DECISION MAKING: Advances in MCDM Models, Algorithms, Theory, and Applications Fox, B.L. / STRATEGIES FOR QUASI-MONTE CARLO Hall, R.W. / HANDBOOK OF TRANSPORTATION SCIENCE Grassman, W.K. / COMPUTATIONAL PROBABILITY Pomerol, J-C. & Barba-Romero, S. / MULTICRITERION DECISION IN MANAGEMENT (continued after index) Narendra Agrawal l Stephen A. Smith Editors Retail Supply Chain Management Quantitative Models and Empirical Studies Foreword by Hau L. Lee 13 Editors Narendra Agrawal Stephen A. Smith Santa Clara University Santa Clara University CA, USA CA, USA [email protected] [email protected] ISBN: 978-0-387-78902-6 e-ISBN: 978-0-387-78903-3 DOI 10.1007/978-0-387-78902-6 Library of Congress Control Number: 2008925269 # Springer ScienceþBusiness Media, LLC 2009 All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed on acid-free paper springer.com Foreword It is with great pleasure that I can write a foreword for the book Retail Supply Chain Management: Quantitative Models and Empirical Studies. I want to con- gratulate the editors, Narendra Agrawal and Stephen Smith, for compiling this impressive volume. This, no doubt, will be a book that provides a solid reference on research on retail supply chains, and inspires new research on this subject. Retailing forms the part of the supply chain that interfaces between the ultimate consumers and the rest of the supply chain. As such, it is often viewed as the part of the supply chain where the real demands of the consumers first show up. Whether we are talking about a physical retail store or a virtual store, the consumer demands that occur here drive the demands in the rest of the supply chain. So in that sense, it is like the frontier of all supply chains. I remember that, when I started working on research on the ‘‘bullwhip’’ effect (demand information distortion) in supply chains, industry practitioners all recognized the importance of having the demand information at the retail level under control, or else it would be hopeless to dampen the bullwhip. In the famous beer game, we have witnessed many examples in which, once the retailer started ordering beer with anxiety or nervousness, then the rest of the supply chain would be in chaos. It is therefore gratifying to see Naren and Steve focusing their volume on retail supply chains. The innovations, lessons in practice, and new technological solutions in managing retail supply chains are not just important in retailing, but crucial in the ultimate effective management of the complete supply chain. There are two distinguishing features in the research of retail supply chains, which the current volume captures well. First, retail supply chains are loaded with a lot of empirical data. This is an area that has traditionally been rich in data, which provides fertile grounds for us to pursue empirical research. Sec- ond, research on retail supply chains naturally intersects with research in marketing in two ways – category management and pricing. Of course, category management and pricing have traditionally been key areas in the marketing literature. But what the current volume has added is the dimension of supply chain management to these marketing approaches. Integrating category management with inventory planning, and coordinating price optimization with supply chain management are unique dimensions that distinguish this book. v vi Foreword I am sure that the readers will share my great enthusiasm for this book as a wonderful addition to the emerging literature on retail supply chain management. Stanford, CA Hau L. Lee Thoma Professor of Operations, Information and Technology Graduate School of Business Stanford University Stanford, CA 94305 USA Preface We began working in retail supply chain management through the retail research program of the Retail Management Institute (RMI) at Santa Clara University. RMI was founded in 1980 by its current Executive Director, Dale Achabal, who is the L. J. Skaggs Distinguished Professor of Marketing at Santa Clara University. Research at RMI has focused on marketing and supply chain decisions in department store chains and specialty retailers. Over 30 major retail chains have participated in our research by providing data and problem descriptions and by sponsoring projects. The goal of our research has always been to develop new analytical tools for supporting the operational and planning decisions that retailers face. The sponsoring organizations saw the poten- tial benefit from developing new analytical methodologies that could take advantage of the capabilities offered by emerging information technologies in retailing. Consequently, a number of the decision support prototypes developed at RMI were later converted into operational software systems by consulting organizations, and application software products by independent vendors. In this sense, the research done at RMI, as well as the research by other authors of chapters in this volume, has led to an array of retailing applications that constitute a great success story for management science, and for supply chain management in particular. We are grateful to all authors who have contributed their research to this endeavor, and thank them for their patience as we went through multiple rounds of the review process for their submissions. We are indebted to our colleagues who painstakingly reviewed the various revisions of the submissions, adhering to standards typical of professional journals. These reviewers include Goker Aydin (University of Michigan), Gerard Cachon (University of Pennsylvania), Nicole DeHoratius (University of Chicago), Vishal Gaur (Cornell University), Warren Hausman (Stanford University), Kirthi Kalyanam (Santa Clara University), Steven Nahmias (Santa Clara University), Andy Tsay (Santa Clara University), and Jin Whang (Stanford University). Finally, we would like to thank Gary Folven, our original editor with Kluwer and later with Springer Publishing, who encouraged us to undertake this project and supported our efforts. We wish to thank our colleagues from the Marketing Department, Dale Achabal, Shelby McIntyre and Kirthi Kalyanam, for collaborating with us on a vii viii Preface wide range of projects. Many retail executives from sponsoring companies have contributed immensely to our research. There are simply too many for us to acknowledge individually, but we are very grateful for their continued support. And we are especially grateful to our wives, Niti Agrawal and Karen Graul for graciously supporting our efforts during the time it took to complete this volume. Santa Clara, CA Narendra Agrawal Santa Clara, CA Stephen A. Smith Contents 1 Overview of Chapters ..................................... 1 Narendra Agrawal and Stephen A. Smith 2 Supply Chain Planning Processes for Two Major Retailers ........ 11 Narendra Agrawal and Stephen A. Smith 3 The effects of firm size and sales growth rate on inventory turnover performance in the U.S. retail sector .................. 25 Vishal Gaur and Saravanan Kesavan 4 The Role of Execution in Managing Product Availability ......... 53 Nicole DeHoratius and Zeynep Ton 5 Category captainship practices in the retail industry ............. 79 Mu¨min Kurtulus¸ and L. Beril Toktay 6 Assortment planning: Review of literature and Industry Practice .... 99 A. Gu¨rhan Kok,¨ Marshall L. Fisher and Ramnath Vaidyanathan 7 Managing variety on the retail shelf: Using household scanner panel data to rationalize assortments ......................... 155 Ravi Anupindi, Sachin Gupta

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