Inventory record inaccuracy in grocery retailing: Impact of promotions and product perishability, and targeted effect of audits

TL;DR

This study analyzes drivers of inventory record inaccuracy in grocery stores, showing audits improve sales especially for perishable items with high inaccuracy, suggesting stock counting as a sales strategy.

Contribution

It identifies key factors influencing inventory inaccuracy and demonstrates the targeted benefits of audits on sales, especially for perishable items with high inaccuracy.

Findings

Inventory inaccuracy is higher for perishable items and those with higher inventory levels.

Inventory audits lead to an 11% increase in sales, mainly for items with negative IRI.

Audits are more beneficial for perishable items with higher inaccuracy.

Abstract

We report the results of a study to identify and quantify drivers of inventory record inaccuracy (IRI) in a grocery retailing environment, a context where products are often subject to promotion activity and a substantial share of items are perishable. The analysis covers ~24,000 stock keeping units (SKUs) sold in 11 stores. We find that IRI is positively associated with average inventory level, restocking frequency, and whether the item is perishable, and negatively associated with promotional activity. We also conduct a field quasi-experiment to assess the marginal effect of stockcounts on sales. While performing an inventory audit is found to lead to an 11% store-wide sales lift, the audit has heterogeneous effects with all the sales lift concentrated on items exhibiting negative IRI (i.e., where system inventory is greater than actual inventory). The benefits of inventory audits are also found to be more pronounced on perishable items, that are associated with higher IRI levels. Our findings inform retailers on the appropriate allocation of effort to improve IRI and reframes stock counting as a sales-increasing strategy rather than a cost-intensive necessity.