Assortment Optimization with Product Level Demand and Substitution Information

This article presents a mathematical model for jointly optimizing base stock levels for the multiple items subject to service level goals. The proposed model uses the expected demand and substitution probabilities between products as inputs and has been used to analyze the effects of demand variability on profitability under service level constraint. The results of the analysis demonstrate that neglecting customer-driven substitution or excluding the impacts of variability and correlations in demand leads to significantly inefficient assortments.