A model for shelf space allocation and inventory control considering location and inventory level effects on demand

Shelf on which products are being displayed is one of the most important resources in retail environment. Retailers cannot only increase their profit but also decrease cost by proper management of shelf space allocation and products display. This paper addresses a problem of retailer who sells various brands of items through displaying on multi-level shelves. It is assumed that the level of shelf on which the product is displayed has a significant effect on sales. We develop an integrated mathematical model for the shelf space allocation problem and inventory-control problem with the objective of maximizing the retailer's profit. Then, a gradient search heuristic and a genetic algorithm are proposed for the solution to the model. The validity of the model is illustrated with example problems. Keywords: Shelf space allocation; Location effects; Inventory control; Gradient search; Genetic algorithm