A MODEL FOR DETERMINING RETAIL PRODUCT CATEGORY ASSORTMENT AND SHELF SPACE ALLOCATION

We develop a category management model to aid retailers in the space c onstrained decisions of which products to stock (assortment) and how m uch shelf space to allocate to those products. The model is formulated as a constrained optimization problem with two basic decision variabl es: assortment and allocation of space to the items in the assortment. The non-linearities in the objective function and the zero-one decisi on variables disallow a closed form solution. We develop a heuristic s olution procedure based on simulated annealing and test it on a proble m with a known optimum. We also apply the technique to a larger proble m without a known optimum. Finally, the solution found by simulated an nealing is compared against a solution produced using a shelf allocati on rule based on share of sales.