Managing Limited Retail Space for Basic Products: Space Sharing vs. Space Dedication

Abstract

In this paper, we study the problem of managing limited retail shelf or storage space for basic products by considering two inventory management strategies: space dedication and space sharing. When space is dedicated to each product, there is more flexibility in planning as different products can be replenished independently. In contrast, when space is shared across different products, there is potential for saving space; however, replenishment has to be coordinated across products and this leads to additional costs due to the lack of flexibility in replenishing each product individually. We model this problem as a non-linear mixed integer program and develop an effective heuristic and an upper bound for each strategy. We introduce three different but consistent criteria to compare each strategy. Through an extensive computational study, we identify the most relevant factors that impact the relative benefit of space sharing over space dedication. In addition, we show that space sharing with an optimal replenishment scheduling program can on average reduce space consumption by 31%.