Inventory Management of a Fast-Fashion Retail Network
Felipe Caro and Jérémie Gallien (2007), submitted to Operations Research [full paper] [Related statement by the Inditex Group]
Press Coverage: CFO Magazine, April 2008; Global Logistics & Supply Chain Strategies, February 2008; Le Figaro, November 2007 (in french); Boston Herald, October 2007; Information Week, October 2007; Chain Store Age, December 2007; Senken Shimbun, December 2007 (in japanese); MIT Sloan News, December 2006

Working in collaboration with Spain-based retailer Zara, we address the problem of distributing over time a limited amount of inventory across all the stores in a fast-fashion retail network. Challenges specific to that environment include very short product life-cycles, and store policies whereby a reference is removed from display whenever one of its key sizes stocks out. We first formulate and analyze a stochastic model predicting the sales of a reference in a single store during a replenishment period as a function of demand forecasts, the inventory of each size initially available and the store inventory management policy just stated. Secondly, we formulate a mixed-integer program embedding a piece-wise linear approximation of the first model applied to every store in the network and allowing to compute store shipment quantities maximizing overall predicted sales, subject to inventory availability and other constraints. We report the implementation of this optimization model by Zara to support its inventory distribution process, and the ensuing controlled field experiment performed to assess the impact of that model relative to the prior procedure used to determine weekly shipment quantities. The results of that experiment suggest that the new allocation process tested increases sales, reduces transhipments, and increases the proportion of time that an important category of Zara's products spends on display.