Measuring the impact of inaccurate inventory information on a retail outlet

Abstract

PurposeThis research aims to consider the impact of common inventory system inaccuracies that occur in retail outlets on the inventory levels, fill rate, and service level of those outlets by simulating daily customer demand and random error in the inventory system.Design/methodology/approachThe simulation experiments vary the amount of inventory system error, the frequency of inventory record error correction, the size of the daily demand, the number of days in the replenishment system's review interval, and the replenishment system's customer service level.FindingsInventory system error and the frequency with which the error is corrected are statistically significant for fill rate and service level. Thus, inaccuracies in inventory levels affect a retail outlet's ability to service its customers, though at the single SKU level, the results do not indicate a practical impact due to countervailing effects.Practical implicationsRetail outlets must be aware that error exists and can influence the behavior of their replenishment systems, but the overall impact may not be as significant as it might appear.Originality/valueThis research extends prior work on the effects of inventory inaccuracies and clarifies the debate pertaining to their ultimate effects on retail performance outcomes.