Abstract
The concept of minimum display quantity (MDQ) is unavoidable in brick-and-mortar retailing format owing to which, retailers need to ensure a minimum level of inventory displayed at each store irrespective of the revenue or inventory turns generated by a particular store. It is observed that majority of bricks-and-mortar retailers in India assume;(a) existing inventory management system is ideal to their store, (b) software solutions record accurate inventory movement, (c) involving store management team in inventory related decision making is risky/biased and most importantly (d) loss of sale due to stockouts is inevitable. Such assumptions and widely followed practice have created a predisposition and mindset in store managers and they believe that their store delivers revenue and profit to the best of its potential with the inventory which is made available to them through existing inventory management system and we cannot avoid a number of instances consumers are unsatisfied due to stockout situations. In this research, we have analysed the existing decision-making process and control systems related to inventory management of a select retailer, attempted to design a new framework and applied the same through an experiment to evaluate the change in (a) overall store profitability and (b) inventory related key performance indicators.
Highlights
IntroductionInventory is one of the most important costs in retailing which holds a significant share of the overall retailing cost structure
Results of decentralization of control over inventory related decision have shown a 39 percent increase in total purchase value, but it failed to show any significant increase in conversions and revenue which was expected to increase as based on the exploratory study it was noted that store teams understand consumers, consumer requirements and local./store level competition better than the central teams, if the inventory related decisions are made by them the probability of higher conversion and revenue is higher
Inventory is a complex component of selling proposition and makes the purchasing phenomenon complicated to understand. It is not just about mathematically/strategically setting the ideal (a) level of the purchase value, (b) timing of purchase, (c) frequency of purchase, (d) stock cover, (e) inventory turns, (f) controller of purchase, and (g) minimum sales threshold to derive the purchase value, it is imperative to set limitations on (a) understanding the role of every product/category and consumers in relation to the overall business goal of the retailing format, (b) what type of product to purchase, (c) purchase frequency based on product type and most importantly,(d) who is the right person to decide on purchasing what, when and how much is required for the store
Summary
Inventory is one of the most important costs in retailing which holds a significant share of the overall retailing cost structure. Even though inventory cost is variable in nature, due to its carrying cost nature inventory becomes an even more important aspect of retailing which has a direct impact on overall store and retailing profitability. Classify these products into different sections either based on consumer needs (demand side) or product’s behaviour (supply side) or visual appeal (communication side) or consumer life-stage (solution side) and this classification is known as categories. Each of these categories includes multiple sub-categories and each subcategory is comprised of multiple brands, models, colours, and SKUs. Every product/category/brand in the entire store’s product offering plays an important role with respect to consumers and retailers. It is imperative to note that, the understanding of the role played by a particular product/category/brand might not be the same among consumers, retailers and sales personnel
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