Analytical approach to measuring profitability for single-period products under low misestimation

Retailers must not only determine optimal order quantity but also accurately predict and measure product profitability to minimize decision-making errors and support shelf space planning. The Achievable Capacity Index (ACI) is a simple approach to measuring the profitability of single-period products under a given target demand; however, discrepancies between target and actual demand can lead to significant miscalculations. Managers seeking to address this issue require a reliable method for adjusting target demand in a timely and rational manner. This paper considers a quadratic loss function to model deviations in demand and guide target demand adjustments. We also developed a novel loss-adjusted ACI (L-ACI) and corresponding hypothesis test to address profitability evaluation. Critical values for relevant parameters are provided in the form of generic lookup tables. The effectiveness of the proposed approach is demonstrated through a real-world case study, and a sensitivity analysis was conducted to offer practical guidelines and managerial insights for inventory management decision-making.