New product demand forecasting and distribution optimization : a case study at Zara
Name
753709870-MIT.pdf
Description
Full printable version
Size
21.81 MB
Format
Adobe PDF
Checksum (MD5)
583cb98814a417a713dde69675c2d41e
Author(s)
Garro, Andres
Advisor(s)
Jérémie Gallien and David Hardt.
Date Issued
2011
Publisher
Massachusetts Institute of Technology
Abstract
The problem of optimally distributing new products is common to many companies and industries. This thesis describes how this challenge was addressed at Zara, a leading retailer in the "fast fashion" industry. The thesis discusses the development and evaluation of a modular system including distributional demand forecasting and dynamic programming distribution optimization. The demand forecasting module combined the practice of using similar products to predict the demand of a new product with a new store or customer cluster data aggregation scheme. Moreover, distributional forecasts were generated using a generic distribution of the expected relative forecast error constructed based on historical forecast performance. Finally, an empirical study of expert or qualitative forecasting within Zara was performed to evaluate the potential for forecast improvement. The distribution optimization module leveraged the distributional forecasts and dynamic programming to determine the optimal initial shipment quantities. The dynamic program directly accounted for the inventory constraints as well as the information dynamics that result from the improvement in forecast accuracy after initial sales are observed. The complete system was validated using extensive simulation. Overall, the new demand forecast reduced forecasting error by over 30% and the final simulation results showed that the overall system would be expected to improve initial sales by over 12%. Given Zara's scale, these results would translate to hundreds of millions in additional profit. Thus, a live pilot was approved and initiated by Zara with the goal of confirming the simulated impact of the system under real conditions. Assuming a successful pilot, full system implementation is expected in 2011.
Description
Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Mechanical Engineering; in conjunction with the Leaders for Global Operations Program at MIT, 2011.
Cataloged from PDF version of thesis.
Includes bibliographical references (p. 191-194).
Subjects
Sloan School of Management.
Mechanical Engineering.
Leaders for Global Operations Program.
MIT Department
Leaders for Global Operations Program at MIT
Massachusetts Institute of Technology. Department of Mechanical Engineering
Sloan School of Management
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