Execution Quality: An Analysis of Fulfillment Errors at a Retail Distribution Center

46 Pages Posted: 14 Dec 2011 Last revised: 8 Aug 2017

Nathan Craig

Ohio State University (OSU) - Fisher College of Business

Nicole DeHoratius

University of Chicago - Booth School of Business

Yan Jiang

Northwestern University - Department of Industrial Engineering and Management Sciences

Diego Klabjan

Northwestern University

Date Written: July 27, 2015

Abstract

Purchase orders specify many aspects of a 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 retail 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 retailer. The retailer may then penalize the supplier for the fulfillment error via a chargeback deduction, which reduces the supplier's revenue. We present a study of the fulfillment errors and chargebacks 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 nd 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. We develop a model of inventory management with correctable fulfillment errors and use the retailer's data 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 sup- 1 pliers that impose large fulfillment error costs as well as in setting appropriate chargebacks for fulfillment errors.

Keywords: retail, inventory accuracy, vendor compliance

Suggested Citation

Craig, Nathan and DeHoratius, Nicole and Jiang, Yan and Klabjan, Diego, Execution Quality: An Analysis of Fulfillment Errors at a Retail Distribution Center (July 27, 2015). Available at SSRN: https://ssrn.com/abstract=1971500 or http://dx.doi.org/10.2139/ssrn.1971500

Nathan Craig

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Nicole DeHoratius (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Yan Jiang

Northwestern University - Department of Industrial Engineering and Management Sciences ( email )

Evanston, IL 60208-3119
United States

Diego Klabjan

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Paper statistics

Downloads
319
Rank
77,511
Abstract Views
1,857