A procurement decision model for a video rental store — A case study
A procurement decision model for a video rental store is presented in this paper. The model is based on inventory management, but many classical inventory management principles are inappropriate since the commodities (movie titles) are removed from, and after a certain time period, returned to inventory. The commodities also have a decaying demand in general; hence the video rental store owner (the decision maker) is required to procure new titles periodically. The question addressed in this paper is how to determine which movie titles to acquire, and how many copies of each in order to best maximise profit. An approximated demand function is presented, and attributes of movie titles in inventory are used to classify candidate movie titles and predict their future demand. This allows the decision maker to select the most profitable candidate items from a list, whilst remaining within a predetermined budget. The procurement decision model is evaluated by means of predicting the expected turnover using the procurement decision model solution, and then comparing it to the turnover achieved using the procurement strategy followed by the store owner. The model is not prescriptive — the decision maker may still utilise his/her experience to acquire new movie titles. The procurement decision model, however, does assist the decision making process by presenting a point of departure from which procurement decisions may be made.
Keywords: Inventory management, video rental industry, procurement strategy.
ORiON Vol. 23 (2) 2007: pp. 89-103