Integrated assortment, shelf space and inventory decisions in retail considering product deterioration with elasticity and positioning effects

This paper investigates a problem faced by retailers when selling multiple products and specifically the decisions related to product assortment, shelf-space planning, inventory replenishment, and storage capacity allocation. Products deteriorate while in stock and are jointly replenished. Additionally, their demand is influenced by elasticity and positioning effects. The retailer’s objective is to maximise the profit by determining the optimal ratio between the surfaces assigned to the backroom facility and the display area, the optimal product assortment, the optimal space assignment and allocation, and the optimal coordinated inventory replenishment policy. A hybrid solution procedure, including a genetic algorithm, is proposed. Among the findings, it was observed that as the decay rate increases, it is preferable to reduce the surface dedicated to the backroom facility. In fact, to mitigate the negative impact of deterioration on profit, it appears desirable to reduce the order quantity and expand the product assortment.