Better inventory management can boost sales by 8%

Will Green is news editor of Supply Management
19 November 2019

More accurate inventory stock reporting could boost retailers’ sales by up to 8%, according to research.

In a report – Inventory Inaccuracy in Retailing: Does it Matter? – Emlyon Business School said at any one time, around 60% of a retailer’s inventory records were “likely to be wrong”, but with greater accuracy sales increased by 4-8%.

Researchers worked with seven retailers across four European countries in the grocery/general merchandise and fashion/apparel sectors and studied data on 233,000 individual products.

In an experiment, researchers conducted stock takes at two different stores per retailer, with each having a different stock-take method. At one store two stock takes were carried out 24 weeks apart and at the other there was an extra one in the middle of the period, correcting any errors that had crept in. Stores with the extra stock take had improved sales.

The report said in the retail sector companies spend around 1% of annual sales acquiring and operating software tools that automatically forecast demand and replenish warehouses.

“One weakness of automatic inventory management systems is that replenishments are triggered based on inventory levels recorded in the system, which can differ from the inventory that is actually available in the retail store or warehouse,” said the report.

Researchers said the type of product had an effect on how accurately it was reported for inventory purposes, with those described as fast-moving, generating up to 75% of total turnover, much more likely to be misreported compared to slow-moving goods.

Yacine Rekik, professor of operations and supply chain management at Emlyon Business School, said reasons for inaccurate stock records included damages, misplacement problems, human or computer errors and product theft.

He said: “It is extremely important that retailers look to report their stock levels more accurately and more regularly so that they are not under or over reporting stock levels – as this inaccuracy either way has a negative effect on annual turnover.”

Rekik said ways to improve stock accuracy included technological solutions and business intelligence, such as data analytics.

“Whilst more simply, improving the efficiency, frequency and intelligence of current stock taking practices is a practical way to do so,” he said. “Though this would take more time and be more costly in the short term, it would ensure inventory is more accurately reported, eventually saving money long term.”

The report was produced by Emlyon Business School, Cardiff Business School and TU Darmstadt, in collaboration with the industry body for shrinkage and consumer demand, Efficient Consumer Response.

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