A procurement decision model for a video rental store — A case study

Abstract

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