A joint optimization of product variety and ordering approach

It has been generally recognised that the product variety or product line decision is one of critical importance to marketing and product managers. Product line composition is one of the most pervasive problems that includes analysis of product additions as well as deletions and the degree of complementarity and substitutability among the different items within the product line. Equally important is the ordering decision which determines the order size and timing of the order for replenishing the stock of each of the products that constitute the given product line. We develop a model, OPROVAR (optimization of product variety and ordering strategy) that considers simultaneously the order quantity decision of a product and the stocking decision of a product line to maximise total profits.