Execution Quality: An Analysis of Fulfillment Errors at a Retail Distribution Center
Ohio State University (OSU) - Fisher College of Business
University of Chicago - Booth School of Business
Northwestern University - Department of Industrial Engineering and Management Sciences
June 30, 2015
Chicago Booth Research Paper No. 12-58
Purchase orders specify many aspects of the fulfillment process, including item quantity, delivery time, carton labeling, bar coding, electronic data interchange, retail ticketing, and others. These fulfillment terms are instrumental for highly optimized supply chains employing automation and techniques such as pack-by-store. When fulfilling a purchase order, a supplier may commit a fulfillment error, i.e., the supplier may fail to adhere to the terms specified by the relevant contract. We present a study of the fulfillment errors that occur in practice using data collected from a major retailer's distribution center. While fulfillment errors involving incorrect product quantities and delivery times have received the most attention in the literature, we find that the majority of fulfillment errors in the context we study involve documentation, bar coding, and retail ticketing. We refer to these as correctable fulfillment errors, since they are amended at the retailer's distribution center through rework without coordination with the supplier. Using the retailer's data, we develop a simulation to assess the cost of these correctable fulfillment errors to the retailer's inventory system. Our research provides guidance to managers in identifying products and suppliers that impose large fulfillment error costs as well as in setting appropriate chargebacks for fulfillment errors.
Number of Pages in PDF File: 46
Keywords: retail, inventory accuracy, vendor compliance
Date posted: December 14, 2011 ; Last revised: July 3, 2015
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