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Operations | "Planning for Demand Uncertainties During Promotional Cycles of Modern Retail"

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Planning for Demand Uncertainties
During Promotional Cycles of Modern Retail

- by Sauraraj Nath & Vikrant P. Bawane *

Previous

Page - 4

Availability studies abroad consistently show out-of-stock rates to be higher for promoted items (Corsten & Gruen, 2003; Taylor & Fawcett, 2001), and the differences between promoted and non-promoted items in most cases are substantial. Out-of-stock items
mean dead-time, money and energy, but more importantly, stock-outs contribute to consumers switching to other brands or retail stores to fulfill their demands. Consumers facing out-of-stocks behave in a variety of ways - including switching the brand or changing the shopping location.

The literature on missing inventory and inventory record inaccuracy in retailing (Raman et al 2001) found empirically that, because of execution failures, customers often do not find the products they seek, even if these products are within the store.

Raman et al (2001) reported that over 65% of the inventory records at one retailer were inaccurate at the store - SKU level, and over 16% of the inventory at another retailer Beta was missing from the shelf. Their studies report that such issues arise mainly due to store and distribution center replenishment processes, merchandising, inventory management and employee turnover.

DeHoratius & Raman (2003) outline three approaches to the inaccurate inventory problem: -

  • Prevention and elimination of root causes (using methods similar to the 5 Ishikawa processes of JIT principles)

  • Correction and identification of errors through inspection policies

  • Software solutions that integrate the source of errors into the inventory management system

    In a follow-up study, Ton & Raman (2004) found that higher product variety and inventories lead to a higher incidence of phantom stock-outs (such that inventory is in the backroom but does not reach the shelf) and lost sales.

    Ton & Huckman (2005) studied the impact of employee turnover on process conformance within retail stores and found that the negative effect of turnover is most pronounced in stores with low process conformance (lesser discipline in process execution and adherence to quality standards).

    Corsten & Gruen (2003) studied the root causes of retail inventory stock-outs and pointed to the mechanisms that address the issue of stock-outs and improve sales.

    Next


    * Contributed by: -
    Sauraraj Nath & Vikrant P. Bawane,
    Post Graduate Programme in Agribusiness Management (PGPABM) II,
    National Institute of Agricultural Extension Management (MANAGE), Hyderabad.


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