2000 Volume 9 Issue 1 Pages 3-23
The profitability of Japanese retailers is continuously declining. Regardless of whether consumer needs have been diversified, most retailers still can not change their management control systems which were developed in the era of economic growth. It has been more than a decade since the necessity of structural change was evoked. This paper describes a profitability control system which determines optimal assortment and multi-item inventory. An efficient algorithm is developed in order to maximize the category's profit by optimizing the use of inventory capital and space allocation. Because the optimum space allocation to SKU changes by the space allocation policy to the category, two performance indicators, Marginal-Throughput and Sales-Throughput, are introduced in order to determine the priority of SKU selection. The numerical results show that the profitability of the category was significantly increased by using this algorithm along with the performance indicators in the category management cycle. Because inventory efficiency and space efficiency are equally improved, profitability can be obtained while retaining the number of SKUs, which give the shelf a more attractive look.
