Assortment planning with inventory considerations in supply chains

The dissertation addresses optimization problems related to the management of product variety with inventory considerations. The objective is to provide insights and tools to help companies determine the optimal level of product variety they should produce/stock and maximize revenues by strategically choosing assortments offered to customers. The dissertation comprises of three chapters. The first chapter explores the role of component commonality in product assortment decisions. We study how the use of component commonality in a production system affects the size of the optimal assortment and the resulting optimal component stocking decisions. In particular, we characterize the structure of the optimal assortment under various configurations of the bill of materials and provide conditions that establish when the optimal variety level increases or decreases relative to a system without common components. We find that the effect of commonality on profit and on the level of variety is stronger when demand exhibits negative correlation. The second chapter explores dynamic assortment customization strategies with limited inventories, in the contexts of a revenue management problem for a firm offering an assortment of products. The goal of the chapter is to determine a dynamic assortment policy in a setting with limited inventories and heterogeneous consumer preferences. The results indicate that limiting the choice set to some customers, in consideration of the prevailing inventory levels and the customers' preferences, leads to increased revenues. We find that, under the optimal dynamic assortment policy, each customer is always offered its most preferred product variant, while it is also offered other product variants provided that their inventory levels are large enough, i.e., above a certain threshold level. These thresholds are increasing with inventory levels and with time. The third chapter explores optimal assortment decisions with non-identical price and cost parameters. We extend our results in the first chapter to a setting where prices are weakly increasing in the net utility of the product. We also derive some novel results related to the structure of the optimal assortment in the dedicated system with general price and cost parameters. The goal of the project is to characterize the optimal assortment and explore the role of component commonality with different price and cost parameters.