Rocket Science Retailing
In the May-June, 2009 issue of Operations Research, Marshall Fisher, UPS Transportation Professor for the Private Sector at the Wharton School, discusses his experiences with the Consortium for Operational Excellence in Retailing. This paper grew out of Fisher’s 2006 Philip McCord Morse Lecture. From the abstract:
Retailing is a huge industry. In the United States, retail business represents about 40% of the economy and is the largest employer. Retail supply chain management is still more art than science, but this is changing rapidly as retailers begin to apply analytic models to the huge volume of data they are collecting on consumer purchases and preferences. This industry-wide movement resembles the transformation of Wall Street that occurred in the 1970s when physicists and other “rocket scientists” applied their analytic skills to investment decisions.
The Consortium for Operational Excellence in Retailing (COER) (codirected by Ananth Raman, Harvard Business School, and myself) is a group of academics working with about 50 leading retailers to assess their progress towards rocket science retailing and to accelerate that progress through selected research projects.
After some brief comments on the current state of industry practice in retail supply chain management, this paper will describe examples of COER research in four areas: assortment planning, pricing, inventory optimization, and store execution.
You can read the full paper at 
2006 McCord Morse Lecture Rocket Science Retailing
.
The editors of Operations Research have invited two groups of researchers to provide commentary for this paper. The first commentary comes from Juin-Kuan Chong from the National University of Singapore and Tek-Hua Ho from the University of California Berkeley. The emphasis in their commentary is on determining the optimal assortment of items in the case of substitution. From their commentary:
Retail decision making begins with assortment planning and assortment drives pricing and inventory sizing decisions. It is thus apt for Fisher to begin his lecture on assortment planning. This commentary focuses on the excellent works of Fisher and collaborators in assortment planning and aims to achieve 2 goals. First, we will describe other research for demand forecasting (including new products that have new attribute levels and lost sale due to imperfect demand substitution)
that may be better suited in some industries (e.g., frequently purchased consumer products). Second, we highlight the importance of using alternative sources of data to validate their method of estimating demand substitution, which uses managerial judgment. Our suggestions and approaches may be added to the existing toolbox for e ective retail decision making.
You can read their full commentary at
Commentary by Chong and Ho
.
Marshall Fisher has provided a response to the commentary, where he says, in part:
Thank you to Juin-Kuan Chong and Teck-Hua Ho for taking the time to write a letter and for your very helpful comments. I am quite familiar with Chong, Ho and Tang (2001) (which is referenced in Fisher (2009)) and have a high regard for this work. This was the first paper to propose a decision support model for assortment planning and to apply it to real data to derive an improved assortment. This is also one of the papers that inspired my collaborator and coauthor Ramnath Vaidyanathan and me to use an attribute approach in our own work on assortment optimization, which is reported in Fisher and Vaidyananth (2008).
You can read the full response at
Response to Chong and Ho
.
The second commentary comes from Gary Lilien, Distinguished Research Professor of Management Science in the Smeal College of Business Administration at Pennsylvania State University. Lilien entitles his response “Extending the Range of Rocket Science Retailing”. He begins with a statement from Fisher’s paper:
His paper begins with the statement that retailing is “paradise for operations researchers” (p527), yet he notes that his biggest surprise when entering the field was that “despite all the data … available, the decision making of most retailers was still highly qualitative and judgment-based.”
Lilien gives five opportunities to extend work in retailing. These are:
- Multichannel retailing
- Online buzz
- Co-creation
- Other data/analysis sources
- Disappointment level of implementation
You can read the full commentary at
Commentary by Lilien
.
Marshall has provided a response to this commentary. As part of the response, Marshall states:
I like all of your ideas and have some comments on each of them.
He then provides detailed comments on each of these areas. You can find the full response at
Response to Lilien
.
Now it is your turn: what is the role that operations research can play in retailing? What are the barriers to implementation, and what are the areas being overlooked? Feel free to provide your comments!
Comments