A Decision-Support System that Helps Retailers Decide Order Quantities and Markdowns for Fashion Goods

MARK, a stochastic dynamic-programming model-based decision-support system, was developed to help retail-store buyers of fashion goods decide on optimal merchandise order quantities and markdown prices to improve profitability and managers' understanding of the decision problems.

Abstract

We developed MARK, a stochastic dynamic-programming model-based decision-support system, specifically to help retail-store buyers of fashion goods decide on optimal merchandise order quantities and markdown prices. We implemented MARK as an interactive software program that runs on users' personal computers and can be integrated with the retailers' point-of-sale (POS) and other information systems. As we show in an actual-case illustration, MARK improved profitability and managers' understanding of the decision problems. MARK also provides valuable insights into the interplay between order-quantity and dynamic-pricing decisions. For example, higher markdown percentages do not necessarily mean lower profits.