> Fresh Produce Inventory and Space Allocation
Fresh Produce Inventory and Space Allocation
Shelf space allocation is a real-world problem that involves the assignments and optimisation of limited shelf space resources among a number of products in the supermarkets. Shelf space allocation has been shown to be at least as difficult as a bounded knapsack problem, a well-known NP-hard problem. Shelf space allocation for fresh produce is especially difficult due to its continuous decay and very limited shelf-life. This problem is also very important considering the increasing demand for healthier food, especially fresh food.
Inventory control and shelf space allocation are two complex, yet correlated, decision making processes in most retail supermarkets. Inventory management involves a series of analysis and optimisation tasks to decide an optimal ordering policy such that the total inventory costs (including procurement cost, holding cost and other operating costs) are minimised meanwhile customers’ satisfaction is maximised. Shelf space allocation concerns the assignment of an appropriate amount of shelf space, together with location consideration, to each product from a given category. To simplify the model, most inventory models are based on single product analysis and assume that the entire inventory is able to be displayed to the customers. However, this is seldom the case in real-world applications because the supermarkets usually have limited shelf space and only a small part of their inventory can be displayed on shelves at any one time. Therefore, products have to compete with each other for the scarce shelf space and the space allocation should favour those products that are more profitable but consume less unit space. An optimised shelf space allocation should give products maximal visual exposition and attraction to customers with the aim of maximising the total sales, profit and/or customers satisfaction. It should be noted that inventory control and shelf space allocation are two very closely related decision making processes. The decision of shelf space allocation will directly affect the inventory management decisions. Below figures reflect the relationship between products sales profits and its invenotry control policty and shelf space allocation decision:
Figure 1: Graphic representation of an item’s profit function with respect to facings s and order quantity q (surplus r = 0)
Figure 2: Graphic representation of an item’s profit function with respect to facings s and surplus r (order quantity q = 90)
Some simulated datasets are available here.