Ordering Behavior in Retail Stores and Implications For Automated Replenishment
Posted: 28 May 2009
Date Written: May 2009
Retail store managers may not follow order advices generated by an automated inventory replenishment system if their incentives differ from the cost minimization objective of the system or if they perceive the system to be suboptimal. We study the ordering behavior of retail store managers in a supermarket chain to characterize such deviations in ordering behavior, investigate their potential drivers, and thereby devise a method to improve automated replenishment systems. Using orders, shipments, and POS data for 19; 417 item-store combinations over 5 stores, we show that: (i) store managers consistently modify automated order advices by advancing orders from peak to non-peak days; (ii) this behavior is explained significantly by product characteristics such as case-pack size relative to average demand per item, net shelf space, product variety, demand uncertainty, and seasonality error. Our regression results suggest that store managers improve upon the automated replenishment system by incorporating two ignored factors: in-store handling costs and sales improvement potential through better in-stock. Based on these results, we construct a method to modify automated order advices to learn from the behavior of store managers. Our method is motivated by the management coefficients theory. It is efficient and outperforms store managers by achieving a more balanced handling workload with similar average days of inventory.
Keywords: retail operations, inventory management, behavioral operations
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