Channel Integration, Sales Dispersion, and Inventory Management

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). This paper was accepted by Vishal Gaur, operations management.

Omni-Channel Intensity and Shopping Value as Key Drivers of Customer Satisfaction and Loyalty

“…From the retail standpoint, some authors have conducted in-depth research into the integration between physical and virtual channels, confirming the generation of competitive advantage as a result of integration [28]. Likewise, according to [29], channel integration is a key factor for inventory management, while the quality of channel integration positively influences perceived fluency [30].…”

Business cycle management and companies performance: inventory management

“…The inventory turnover ratio measures the number of times inventory has been sold and replaced during the year. It is a good measure whether the inventory is obsolete if there are efficient buying practices and inventory management in general (Hançerlioğulları, Şen, & Ağca Aktunç, 2016;Ballou, 2000;Biggart & Gargeya, 2002;Gallino, Moreno, & Stamatopoulos, 2016;Balcik, Bozkir, & Kundakcioglu, 2016). Where low ratio suggests weaker sales and potentially surplus inventory where high ratio suggests stronger sales in total high ratio can suggest insufficient inventory levels (Hançerlioğulları et al, 2016;Ballou, 2000;Biggart & Gargeya, 2002;Bromiley et al, 2010).…”

Omnichannel fulfillment strategies: defining the concept and building an agenda for future inquiry

“…Thus, there is potential for researchers in these methodological communities to inform each other's research. Our analysis of the extant Trends are also beginning to be identified empirically; Gallino et al (2016) identified greater sales dispersion when a retailer adds STS to its omnichannel capabilities. In addition, Kull et al (2013) demonstrated how channel fulfillment within an omnichannel DC can lead to different types of inventory inaccuracy.…”

“…For example, buy-in-store-deliver-to-store is fulfilled identically as an STS order. Buy-in-storedeliver-to-home is fulfilled the same as an online order (Agatz et al, 2008;Gallino et al, 2016).…”

“…Often these are different DCs than are used to replenish stores. The STS network consists of the stores and the DCs that satisfy STS orders (Gallino et al, 2016) Buy-online-ship-fromstore (BOSS) BOSS is again initiated by a customer's online order with the customer requesting delivery. The order is directed to a store for fulfillment (De Koster, 2003;Bendoly, 2004;Boyer and Hult, 2006).…”