Benefits of postponement for fashion products with forecast updates

Abstract

This thesis examines the benefit of postponement of fashion products by considering the overage cost of the intermediate product and the correlation between the demand for each end products produced from it. The benefit of postponement is measured by the percentage increase in maximum expected profit after demand is realized. the production process is modelled as a two stage newsvendor problem and the forecast update path follows an additive martingale. An optimal solution and a myopic solution are proposed to solve this problem. Numerical results indicate that the benefit of postponement decreases with the overage cost of the intermediate product and the correlation between demand for each end products. It becomes less sensitive to the overage cost of the intermediate product when end products are more negatively correlated. It is also less sensitive to the demand correlation between end products when the overage cost of the intermediate product is low. In addition, the benefit of postponement is sensitive to the additional unit costs introduced by postponement. A case study to NFL Jerseys purchase planning indicates that an increase of unit cost by 10% can reduce the benefit of postponement by over 50%.