Coordination of inventory distribution & price markdowns for clearance sales at Zara

There is an essential need in the retail industry, of integrating inventory planning and pricing strategies. In the fast-fashion world of retail, inventory is treated as a perishable item leading to short selling periods. It is a common practice for retailers to liquidate unsold merchandise via clearance markdown policies. Joint marketing and production decisions are important and challenging in retailing. Clearance sales depend on the pricing, seasonal effects, and the assortment of goods available to the customer. Errors in inventory distribution and clearance pricing result in loss of potential revenue or excess inventory to be salvaged. In the case of Spanish-based retailer Zara, thirteen percent of annual revenues are attributed to clearance sales. To maximize these revenues a supply chain tool is designed to facilitate the inventory distribution decisions for the clearance season while considering price markdowns. A two part linear optimization model considers the demand forecast, pricing decisions, and logistic costs in determining the allocation of excess inventory. The business case is very similar to other retailers where revenues need to be maximized. However, Zara's business model and vertically integrated supply chain makes this case very unique. In a forecast error comparison test, the proposed solution improved the forecast error from 8 to 4 percent in respect to the current forecast process.

Department dc:contributor.department

Leaders for Global Operations Program at MIT

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2010

Author dc:creator

• Verdugo, Orietta Parra

Advisor dc:contributor.advisor

• Chris Caplice and Felipe Caro.

• Sloan School of Management.
• Engineering Systems Division.
• Leaders for Global Operations Program.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/59180

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/59180