Inventory Integration with Rational Consumers

Abstract

Retailers have increasingly pursued initiatives to combine inventory located throughout their enterprise into a single stock from which customers anywhere in their distribution network may purchase. Also known as inventory pooling, this practice is well known to generate operational value by reducing inventory requirements and stock-outs. In “Inventory Integration with Rational Consumers,” Aflaki and Swinney examine a different consequence of pooling: how it influences customer purchasing behavior. They show that integration can lead to behavioral consequences resulting from changing customer purchasing incentives, especially for seasonal goods that are sold in end-of-season clearance sales. These behavioral effects can be negative, and can even outweigh the operational benefits of pooling, if pooling leads to an increase in clearance sale inventory availability that encourages more customers to wait for discounts before buying. Specific conditions that lead to negative (or positive) behavioral value of integration are discussed. Overall, the results illustrate that the ways customers react to inventory pooling can be just as important as its operational consequences.