European Journal of Operational Research
Volume 246, Issue 3, 1 November 2015, Pages 686–699
 

Hojung Shin (a), , , , Soohoon Park (b), , Euncheol Lee (c), , W.C. Benton (d),
a Department of LSOM, Korea University Business School, Seoul 136-701, Republic of Korea
b Department of Management Science, Moore School of Business, University of South Carolina, Columbia, SC 29208, USA
c Department of Purchasing, POSCO, Seoul 135-923, Republic of Korea
d Department of Management Sciences, Max F. Fisher College of Business, The Ohio State University, Columbus, OH 43210, USA
http://dx.doi.org/10.1016/j.ejor.2015.04.013

Abstract
A company's assortment of products and corresponding inventory levels are constrained by available resources, such as production capacity, storage space, and capital to acquire the inventory. Thus, customers may not always be able to find a most preferred product at the time of purchase; this unsatisfied demand is often substituted with an alternative. In the extant literature, there have been an increasing number of studies that consider product substitution when planning product assortment, inventory, and capacity, in conjunction with pricing. In this paper we classify the literature on the planning of substitutable products published in the major OM and marketing journals during the past thirty years (1974–2013) and present a comprehensive taxonomy of the literature. One criterion is adopted to discuss modeling objectives, and three major criteria are provided to define the nature of product substitution, including substitution mechanism, substitution decision maker, and direction of substitutability. We also identify research gaps to provide guidance for related research in the future.

Keywords
Inventory; Product substitution; Choice model; Assortment decision; Pricing