Managing product stock keeping based on purchase association effect

Abstract

Customer purchase behavior naturally affects the quantity or the choice of products they purchase. As such, purchase dependencies can be assumed to be closely related to the association the items or products they purchased together at one particular time. This study focuses on the association of product being purchased within one transaction based on the transaction made by the customers in retail shops and a supermarket. The objective is to adopt the inventory model with purchase dependencies in a real world and finally to compare the effect of purchase dependencies in the product availability level. Primary data were obtained from 130 customer sales transactions in the retail shop and the supermarket over a 7- day period. In order to demonstrate the effect of purchase dependencies on the total inventory cost, we adapted a new inventory model that utilizes purchase dependence. Finally, the test for significance of the difference is applied to show the effect of incorporating purchase dependencies in the inventory model. The simulation results demonstrated that the extended inventory models which have considered purchase dependencies showed reduction in lost sales and lost profit as well as total inventory cost. In conclusion, by incorporating purchase dependence element into inventory management process, we can minimize total inventory cost as well as lost profit.