Optimization objective: Avoiding markdowns

Avoiding markdowns is one of the five fulfillment objectives that Optimization service considers when optimizing orders. When this objective is prioritized, fulfillment decisions are based primarily on preventing markdowns at nodes while still meeting customer expectations. Optimization service analyzes the possibility of a potential future markdown at each node and favors options with the highest probability of one to fulfill the order.

Overview

Optimization service considers the following factors when optimizing orders with a priority of avoiding markdowns:

In-store and online sales
Future replenishments
Markdown plans
Inventory availability

The inventory model analyzes the possibility of a markdown at a node, balances the inventory of a SKU at the network level, and selects ship nodes with high probabilities of a markdown. This model is based on the probability and predicted demand of an item. It is calculated for the SKU-ship node combination by using a proprietary algorithm based on feeds of inventory, markdown, TLOG, order, replenishment, and SKU data. The system uses demand predictions to calculate the markdown avoidance cost at the SKU-ship node level.

The markdown avoidance cost represents the amount of money that is gained (a negative cost) by sourcing an order from a ship node. This cost is multiplied by the optimization weight set for the Avoiding markdowns objective before it is factored during optimization. By predicting and ultimately avoiding a markdown, you can obtain markdown avoidance benefits, which are reported in Benefits report.

To avoid markdowns, the Optimization service performs the following actions:

Learns sell-through patterns by using inventory and sales data to assess the risk of a markdown.
Assigns a value to the risk of markdown based on the product's lifecycle stage.
Sources SKUs nearing markdown in advance to avoid selling at a low markdown price in the future.
Trades off markdown savings against fulfillment costs while it is sourcing orders.

Idle assets or orphaned returns in a store can be modeled as artificial markdowns in your markdown plan.

You can adjust the Optimization profile to prioritize Markdown avoidance. For more information about the optimization profile, see Managing optimization profiles.

For more information about avoiding markdowns in a real-time scenario, see Scenario: Markdown avoidance optimization.