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Optimization Problem

An optimization problem is a structured decision problem in which the goal is to find the best possible outcome (e.g., highest return, lowest cost) under a set of constraints. In e-commerce, the actual optimization is performed over combinations of SKU, supplier, sales channel or marketplace, and fulfillment option.

Why It Matters

  • •Inventory decisions almost always involve constraints: budget limits, MOQ, MVQ, case-pack sizes, storage limits, lead times, safety stocks.
  • •Choosing SKUs independently often leads to suboptimal results because the real decision is how to allocate capital across a portfolio.
  • •Optimization provides a systematic way to evaluate trade-offs.

Connection to Capital

Optimization is required when capital is limited. It determines how to allocate working capital across SKUs to maximize expected financial return.

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