On‐Shelf Availability, Retail Performance, and External Audits: A Field Experiment

Abstract

A potential answer to retailer's shelf out‐of‐stocks (OOS), where the item is in the store but customers cannot find it, is to employ third‐party service providers to execute audits and corrections. However, given the nontrivial cost of executing external audits, it is still necessary to assess whether external audits are capable of reducing shelf‐OOS, whether they can be performed in an economical way, and whether the benefits from the audits translate into higher sales. In an effort to address these questions, we partnered with a product manufacturer and a retail service provider and conducted a field experiment in a national retailer's store set. We used transactional data to detect abnormal operations and respond to possible shelf‐OOS by sending auditors to correct empty shelves and incorrect inventory records. At the conclusion of the experiment, we found that Stock Keeping Units in the treatment group were less likely to have shelf‐OOS and inventory record inaccuracies, and that our intervention had a positive effect on sales. Furthermore, we found that the external audit initiative is economically viable since these improvements required low auditing efforts after a transitional period, and in steady state the cost of running the program is a small fraction of the benefits it generates. We discuss the limitations of our study and the implications of our findings for researchers and practitioners.

Intervention as a research strategy

“…After each visit, the auditors submitted an audit report that reflected the conditions found relative to the item status and inventory record. (Chuang et al, , p. 939)…”

“…After each visit, the auditors submitted an audit report that reflected the conditions found relative to the item status and inventory record. (Chuang et al, , p. 939)One challenge of field, as opposed to laboratory, experiments is that it is often impractical (or impossible) to control for exogenous sources of variance. Our field experiment was no exception.…”

“…A possible alternative explanation for the decay in audits is that the retailer's employees became aware of the special status of the SKUs in the experiment and were more careful in the restocking process. We rule out this explanation, as the retailer's employees could not have identified the special status of these SKUs in their normal operating context (see the explanation on p. 939 and in footnote 1 of Chuang et al, ).…”

Retail Supply Chain Management

“…Such reports have started to emerge. Chuang et al (2012) report on a field experiment in which a data-driven heuristic was used to trigger inspections. Hardgrave et al (2013) report on two controlled field experiments measuring the reduction in record inaccuracy enabled by real RFID implementations.…”

Modeling (and Learning from) Inventory Inaccuracies in E‐retailing/B2B contexts

“…IRI may affect the operational and financial performance of a company in various ways (e.g., Rinehart, ; Hardgrave, Aloysius, & Goyal, ; Chuang, Oliva, & Liu, ). If the IS overcounts the available inventory, the system may fail to order at the right point in time, causing stockouts and a reduction in service levels.…”