The backroom effect in retail operations

Eroglu, Cuneyt; Williams, Brent D.; Waller, Matthew A.

doi:10.1109/emr.2015.7059375

Cited by 10 publications

(32 citation statements)

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“…First, store execution needs more attention from researchers given that the effectiveness of inventory control (Eroglu et al. ), sales promotions (Ettouzani et al. ), and regular sales operations (Fisher and Raman ) are contingent on this ability to execute.…”

Section: Discussionmentioning

confidence: 99%

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

Chuang

Oliva

Sheng

2016

Production and Operations Management

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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.

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Section: Discussionmentioning

confidence: 99%

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

Chuang

Oliva

Sheng

2016

Production and Operations Management

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“…This extends the role of store backroom beyond merely being a place to hold excess inventory (as, for example, assumed by Eroglu et al. ). Similarly, synergies may arise through the realization of economies of scale due to cost‐effective backroom storage and the manipulation of demand by the strategic use of the on‐shelf inventory level.…”

Section: Introductionmentioning

confidence: 79%

“…A recent paper that distinguishes the backroom and showroom inventories is by Eroglu et al. (). They quantify the “backroom effect” as a consequence of misaligned shelf space management and inventory replenishment, however, their focus is on minimizing costs while we investigate profit‐maximizing policies under the inventories’ demand effects.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Recent works demonstrate the benefits of distinguishing the store backroom and the shelf space as separate stocking places (Eroglu et al. , Yang and Zhang ), and industry experts point to the evolving role and importance of store backrooms, e.g., in customer‐direct fulfillment practices (Tompkins ). Motivated from these observations, we make an explicit distinction between the backroom and the display shelf.…”

Section: Introductionmentioning

confidence: 99%

“…These differences have only recently attracted attention from the inventory management literature (Eroglu et al. ) and are shown to have a potentially considerable effect on total costs. On the marketing side, distinguishing backroom and shelf space as two storage areas introduces interesting dynamics in the presence of billboard or scarcity effect.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Managing Retail Shelf and Backroom Inventories When Demand Depends on the Shelf‐Stock Level

Xue

Demirag

Chen

et al. 2017

Production and Operations Management

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Inventory displayed on the retail sales floor not only performs the classical supply function but also plays a role in affecting consumers’ buying behavior and hence the total demand. Empirical evidence from the retail industry shows that for some types of products, higher levels of on‐shelf inventory have a demand‐increasing effect (“billboard effect”) while for some other types of products, higher levels of on‐shelf inventory have a demand‐decreasing effect (“scarcity effect”). This suggests that retailers may use the amount of shelf stock on display as a tool to influence demand and operate a store backroom to hold the inventory of items not displayed on the shelves, introducing the need for efficient management of the backroom and on‐shelf inventories. The purpose of this study is to address such an issue by considering a periodic‐review inventory system in which demand in each period is stochastic and depends on the amount of inventory displayed on the shelf. We first analyze the problem in a finite‐horizon setting and show under a general demand model that the system inventory is optimally replenished by a base‐stock policy and the shelf stock is controlled by two critical points representing the target levels to raise up/drop down the on‐shelf inventory level. In the infinite‐horizon setting, we find that the optimal policies simplify to stationary base‐stock type policies. Under the billboard effect, we further show that the optimal policy is monotone in the system states. Numerical experiments illustrate the value of smart backroom management strategy and show that significant profit gains can be obtained by jointly managing the backroom and on‐shelf inventories.

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Inventory record inaccuracy: Causes and labor effects

Chuang

Oliva

2015

J of Ops Management

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Inventory record inaccuracy (IRI) is a pervasive problem in retailing and causes non-trivial profit loss. In response to retailers' interest in identifying antecedents and consequences of IRI, we present a study that comprises multiple modeling initiatives. We first develop a dynamic simulation model to compare and contrast impacts of different operational errors in a continuous (Q, R) inventory system through a fullfactorial experimental design. While backroom and shelf shrinkage are found to be predominant drivers of IRI, the other three errors related to recording and shelving have negligible impacts on IRI. Next, we empirically assess the relationships between labor availability and IRI using longitudinal data from five stores in a global retail chain. After deriving a robust measure of IRI through Bayesian computation and estimating panel data models, we find strong evidence that full-time labor reduces IRI whereas part-time labor fails to alleviate it. Further, we articulate the reinforcing relationships between labor and IRI by formally assessing the gain of the feedback loop based on our empirical findings and analyzing immediate, intermediate, and long-term impacts of IRI on labor availability. The feedback modeling effort not only integrates findings from simulation and econometric analysis but also structurally explores the impacts of current practices. We conclude by discussing implications of our findings for practitioners and researchers.

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The backroom effect in retail operations

Cited by 10 publications

References 0 publications

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

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

Managing Retail Shelf and Backroom Inventories When Demand Depends on the Shelf‐Stock Level

Inventory record inaccuracy: Causes and labor effects

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