We are Zappos.

We are currently 3 months from the start of the fall season. Merchandisers are going to market to make buys, and marketing (search, product ads, email, affiliates) is gearing up to plan the spend for the upcoming season. Generally, marketing creates demand, merchandisers create supply. Most of our product has been bought for the season well in advance, and the options to buy more during the season are limited.

We currently segment the season into 3 phases: early season, peak season, and end of season. Zappos has a sister site, 6pm.com, which it uses to liquidate excess inventory at competitive prices. It is cheaper to sell on 6pm, because of the more restrictive return and slower shipping policies. Zappos itself does not offer discounts.

The problems we may face are:

Excess inventory at the end of the season in some categories or brands

Overuse of expensive marketing channels by customers

Unexpected competitive pressure as other retailers more successfully sell the same product

There are many ways we can manage our inventory to achieve our business goals:

Returns to vendor (RTVs): inventory returned to the vendor

Swaps: inventory returned to the vendor in exchange for different product

Site promotions (visual): ads featured prominently on the site to highlight specific product

Direct email: marketing emails sent to customers to promote product on the site

Increased spend on marketing channels: e.g. bidding higher or on different search terms in order to drive additional product sales

Transfer: inventory transferred from Zappos to6PMto be liquidated

Questions:

How would you approach designing a business process to manage inventory and generate demand throughout the season?

What additional information would you need to know, what other factors would you need to consider, and how would you go about investigating them?

Given the problems Zappos may face throughout the season, how would you evaluate the best actions to takeat a given point in time? What metric(s) would you look at to come up with the optimal decision? What optimization model that you have seen or used for a different type of application could apply here? Why do think the problem is similar? State all assumptions.

How would you determine the best time to take a given action, e.g. transferring product to the liquidation channel? What metric(s) would you look at to come up with the optimal decision? What optimization model that you have seen or used for a different type of application could apply here? Why do think the problem is similar? State all assumptions.