APPLICATION OF OPERATIONS RESEARCH IN THE FASHION INDUSTRY

The application of scientific methods to the solution of managerial and administrative

problems, involving complex systems or processes. Operational research strives to
find the optimum plan for the control and operation of a system or process. It was
originally used during World War II as a means of solving logistical problems. It has
since developed into a planning, scheduling, and problem solving technique applied
across the industrial, commercial, and public sectors.

Example: Most airlines utilize a revenue maximizing technique called yield

management (YM), which allows the airlines to allocate their fixed capacity of
seats to various fare categories in the most profitable manner possible. The
discriminatory pricing goal is to sell only non-discounted seats to the business
travel segment. Suggests that yield management techniques may also be
appropriate in certain retail settings where capacity (i.e. product inventory) is not
necessarily “perishable” in the same sense as unsold seats on an airline flight
however, its value may decline with the culmination of a well-defined shopping
period (e.g. the “Christmas holiday” shopping period). Examines how knowledge
of customer price sensitivity as it pertains to this shopping period, coupled with
the appropriate use of discount pricing, can maximize the revenue gained from
sales of a seasonal product associated with a specific holiday.
Sense and respond in the commercial sector. IBM has built the sense-and-respond
framework and conducted several pilots in the areas of supply chain management,
transportation management and customer relationship management. As an example, at the
IBM PC Division, a major challenge was to improve both the on-time delivery of the
PCD products to customer orders and the ability to predict and respond to supply and
demand imbalances. To address these issues, a Web-based sense-and-respond system was
built to identify forecast/order events and available supply headlights across the supply
chain.

The system monitors supply-and-demand imbalances for commodities and detects out-of-
threshold situations. A key innovation in this pilot is a new algorithm that identifies
potential gaps by using historical information and future indicators to forecast ordering
trends. The new algorithm has been coupled with improved data integration and a Web-
based management dashboard that provides a current view of key supply-and-demand
measurements.

This sense-and-respond supply-and-demand conditioning initiative has brought an

estimated 10 percent to 15 percent increase in profitability through improved
serviceability and customer retention. Another result has been reduced inventory write-
downs in a market where assets depreciate 0.5 percent per week.
Sales forecasting is a challenging problem owing to the volatility of demand which
depends on many factors. This is especially prominent in fashion retailing where a
versatile sales forecasting system is crucial. This study applies a novel neural network
technique called extreme learning machine (ELM) to investigate the relationship
between sales amount and some significant factors which affect demand (such as
design factors). Performances of our models are evaluated by using real data from a
fashion retailer in Hong Kong. The experimental results demonstrate that our proposed
methods outperform several sales forecasting methods which are based on
backpropagation neural networks.