Evaluating Count Prioritization Procedures for Improving Inventory Accuracy in Retail Stores

35 Pages Posted: 30 Jul 2020 Last revised: 1 Aug 2020

See all articles by Nicole DeHoratius

Nicole DeHoratius

University of Chicago - Booth School of Business

Andreas Holzapfel

Hochschule Geisenheim University

Heinrich Kuhn

Catholic University of Eichstaett-Ingolstadt

Adam Mersereau

University of North Carolina Kenan-Flagler Business School

Michael G. Sternbeck

Catholic University of Eichstaett-Ingolstadt

Date Written: July 27, 2020

Abstract

We compare several approaches for generating a prioritized list of products to be counted in a retail store, with the objective of detecting inventory record inaccuracy and unknown out-of-stocks. We consider both "rule-based" approaches, which sort products based on heuristic indices, and "model-based" approaches, which maintain probability distributions for the true inventory levels updated based on sales and replenishment observations. Our study evaluates these approaches on multiple metrics using data from inventory audits we conducted at European home and personal care retailer dm-drogerie markt. Our results support arguments for both rule-based and model-based approaches. We find that model-based approaches provide versatile visibility into inventory states and are useful for a broad range of objectives, but that rule-based approaches are also effective as long as they are well-matched to the retailer's goal.

Keywords: inventory, retail

Suggested Citation

DeHoratius, Nicole and Holzapfel, Andreas and Kuhn, Heinrich and Mersereau, Adam and Sternbeck, Michael G., Evaluating Count Prioritization Procedures for Improving Inventory Accuracy in Retail Stores (July 27, 2020). Kenan Institute of Private Enterprise Research Paper Forthcoming, Chicago Booth Research Paper 20-20, Available at SSRN: https://ssrn.com/abstract=3661481 or http://dx.doi.org/10.2139/ssrn.3661481

Nicole DeHoratius

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Andreas Holzapfel

Hochschule Geisenheim University ( email )

Von-Lade-Str. 1
Geisenheim, 65366
Germany

Heinrich Kuhn

Catholic University of Eichstaett-Ingolstadt ( email )

Department of Production and Operations Management
Auf der Schanz 49
Ingolstadt, 85049
Germany
0049-841-9371820 (Phone)

Adam Mersereau (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Michael G. Sternbeck

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
Germany

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