Channel Integration, Sales Dispersion, and Inventory Management

39 Pages Posted: 12 Sep 2014 Last revised: 16 Nov 2016

See all articles by Santiago Gallino

Santiago Gallino

University of Pennsylvania - The Wharton School, Operations, Information and Decisions Department

Antonio Moreno

Harvard University - Technology & Operations Management Unit

Ioannis Stamatopoulos

University of Texas at Austin - McCombs School of Business

Date Written: September 10, 2014

Abstract

We study the effects of the introduction of cross-channel functionalities on the overall sales dispersion of retailers and the implications of these effects for inventory management. To do that, we analyze data from a leading U.S. retailer who introduced a “ship-to-store” (STS) functionality that allows customers to ship products to their local store free of charge when those products are not available in their local store. Based on the fact that stores prioritize carrying products for which local demand is high, we test the hypothesis that introducing the STS functionality increased the retailer’s overall sales dispersion. We find that, on average, the contribution of the 90% lowest-selling products to total sales increased by 0.75 percentage points, increasing sales dispersion. Calibrating conventional inventory-ordering models, we show that to respond optimally to the observed increase in dispersion, the retailer would need to increase its cycle and safety inventories by approximately 2.7%. Our paper points out the effect of an increasingly important retail phenomenon (channel integration) on a key factor for inventory management (sales dispersion).

Keywords: retail operations, online retail, channel integration, long tail, empirical operations, inventory management, omnichannel retail

JEL Classification: D12, D21, L81

Suggested Citation

Gallino, Santiago and Moreno, Antonio and Stamatopoulos, Ioannis, Channel Integration, Sales Dispersion, and Inventory Management (September 10, 2014). Available at SSRN: https://ssrn.com/abstract=2494516 or http://dx.doi.org/10.2139/ssrn.2494516

Santiago Gallino

University of Pennsylvania - The Wharton School, Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States

Antonio Moreno

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=1029325

Ioannis Stamatopoulos (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

2110 Speedway B6000
Austin, TX 78705
United States

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