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Measuring the sales impact of improving inventory records: How improving the accuracy of inventory records can grow sales by 4-8%

Rekik, Yacine, Syntetos, Aris A. and Glock, Christoph H. 2019. Measuring the sales impact of improving inventory records: How improving the accuracy of inventory records can grow sales by 4-8%. Efficient Consumer Response (ECR). Available at: https://www.ecrloss.com/research/grow-sales-by-imp...

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Abstract

There is a growing body of evidence to suggest that retailers’ inventory records are inaccurate to a significant extent. And it is reasonable to assume that the higher the inventory record inaccuracy (IRI), the higher the impact on sales. But what does this mean in real terms? This report describes the outcome of a 3-year project (conducted with the participation of 7 of Europe’s largest retailers) the aim of which is to quantify the IRI problem and demonstrate the sales lift resulting from fixing it. A structured test-control type experiment is used, according to which test stores are subjected to stock counts at some particular point in time, whereas control stores are not, allowing us to measure the effect of reconciling (or not) the stock records on sales. The analysis covers approximately 1 Million stock keeping units (SKUs) sold in about 100 stores; such data is of a different order of magnitude to anything previously attempted in the academic and practitioner literature, leading to important, reliable and trustworthy conclusions. We find that about 60% of the SKUs analysed are affected by inventory record inaccuracies. We also find that positive IRI is as prevalent as negative IRI, with the same detrimental effects though on sales. Very importantly, correcting inventory inaccuracies is found to lead to approximately 4% to 8% of increased sales in the participating retailers. Interestingly, this applies to all retailers including the particularly ‘accurate’ ones. The results demonstrate that the biggest opportunity for improvement comes from high-volume expensive items, and detailed analysis by product category shows which categories should attract most attention. Finally, we discuss and show results on how inventory accuracy deteriorates over time following a stock count. This has implications for deciding how often and when stocktakes should take place. Our findings should be of great value to retailers to: i) inform their decisions on the appropriate levels of resource and investment against improving inventory records accuracy; ii) prioritise investments per product category and class; iii) appreciate the behaviour of positive and negative discrepancies; iv) discuss counting as a sales increase strategy rather than a cost-intensive necessity.

Item Type: Monograph (UNSPECIFIED)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Efficient Consumer Response (ECR)
Funders: Efficient Consumer Response (ECR)
Date of First Compliant Deposit: 16 July 2021
Date of Acceptance: 19 November 2019
Last Modified: 26 Jul 2021 10:00
URI: https://orca.cardiff.ac.uk/id/eprint/142664

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