The Effect of Inventory Level on Product Availability and Sale

Abstract

By increasing inventories, retailers attempt to raise service levels, and thus increase sale. However, in addition to a positive impact on product availability and sale, higher inventory levels may cause problems in performing in-store activities. As poor backroom-to-shelf replenishment process emerges as one of the most common causes of stock-out situations, this article compares store and on-shelf FMCG product availability at SKU level in different stores of a single retailer. In relation to this, besides direct, we have also investigated the indirect effect of inventory level on sale, by using store and shelf out-of-stocks as mediators. The results of the research showing much higher level of shelf- compared to store stock-out rate confirmed the existence of the problem in the realization of internal product flows within retail stores. However, despite the occurrence of this problem, besides direct positive effect of inventory level on sale, its indirect effect was positive as well. Therefore, these results were analysed in the context of other similar studies. In addition to empirical research, the article also discusses certain implications of more efficient organisation of in-store activities.