Inventory Based Recommendation Algorithms

Du Chen, Yuming Deng, Guangrui Ma, Hao Ge, Yunwei Qi, Ying Rong, Xun Zhang, Huan Zheng

Abstract: We propose two recommendation algorithms for e-commerce with supply limits, a scenario that has not been intensively studied in the literature. One algorithm is a linear programming-based algorithm that uses historical data to approximate customer arrival patterns and generate shadow prices for inventories. The price of inventory can be introduced to existing recommendation algorithms to obtain adjusted rankings for recommendation. The other algorithm balances expected revenue and inventory consumption, and it uses a simple penalty function to reduce the chance of recommending low-inventory-level products. Both algorithms are suitable for online recommendation systems for grocery stores with both online and offline channels, and can incorporate the features of perishable products, which need to be sold within limited time. Both algorithms are tested in a simulation using estimated parameters from Freshippo, a supermarket owned by the Alibaba Group. The numerical results show that both algorithms can generate higher sales volume and higher revenue.