IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v54y2008i4p627-641.html
   My bibliography  Save this article

Inventory Record Inaccuracy: An Empirical Analysis

Author

Listed:
  • Nicole DeHoratius

    (Graduate School of Business, The University of Chicago, Chicago, Illinois 60637)

  • Ananth Raman

    (Harvard Business School, Boston, Massachusetts 02163)

Abstract

Traditional inventory models, with a few exceptions, do not account for the existence of inventory record inaccuracy (IRI), and those that do treat IRI as random. This study explores IRI observed both within and across product categories and retail stores. Examining nearly 370,000 inventory records from 37 stores of one retailer, we find 65% to be inaccurate. We characterize the distribution of IRI and show, using hierarchical linear modeling (HLM), that 26.4% of the total variance in IRI lies between product categories and that 2.7% lies between stores. We identify several factors that mitigate record inaccuracy, such as inventory auditing practices, and several factors that exacerbate record inaccuracy, such as the complexity of the store environment and the distribution structure. Collectively, these covariates explain 67.6% and 69.0% of the variance in IRI across stores and product categories, respectively. Our findings underscore the need to design processes to reduce the occurrence of IRI and highlight factors that can be incorporated into inventory planning tools developed to account for its presence.

Suggested Citation

  • Nicole DeHoratius & Ananth Raman, 2008. "Inventory Record Inaccuracy: An Empirical Analysis," Management Science, INFORMS, vol. 54(4), pages 627-641, April.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:4:p:627-641
    DOI: 10.1287/mnsc.1070.0789
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1070.0789
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1070.0789?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Marvin B. Lieberman & Lieven Demeester, 1999. "Inventory Reduction and Productivity Growth: Linkages in the Japanese Automotive Industry," Management Science, INFORMS, vol. 45(4), pages 466-485, April.
    3. Marshall L. Fisher & Christopher D. Ittner, 1999. "The Impact of Product Variety on Automobile Assembly Operations: Empirical Evidence and Simulation Analysis," Management Science, INFORMS, vol. 45(6), pages 771-786, June.
    4. Sheppard, George M. & Brown, Karen A., 1993. "Predicting inventory record-keeping errors with discriminant analysis: A field experiment," International Journal of Production Economics, Elsevier, vol. 32(1), pages 39-51, August.
    5. A. Gürhan Kök & Kevin H. Shang, 2007. "Inspection and Replenishment Policies for Systems with Inventory Record Inaccuracy," Manufacturing & Service Operations Management, INFORMS, vol. 9(2), pages 185-205, February.
    6. Nicole DeHoratius & Ananth Raman, 2007. "Store Manager Incentive Design and Retail Performance: An Exploratory Investigation," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 518-534, April.
    7. Gene Woolsey, 1977. "The Fifth Column---The Warehouse Model that Couldn't Be and the Inventory that Couldn't Be Zero," Interfaces, INFORMS, vol. 7(3), pages 14-17, May.
    8. Ido Millet, 1994. "A Novena to Saint Anthony, or How to Find Inventory by Not Looking," Interfaces, INFORMS, vol. 24(2), pages 69-75, April.
    9. Kannan Srinivasan & Sundar Kekre & Tridas Mukhopadhyay, 1994. "Impact of Electronic Data Interchange Technology on JIT Shipments," Management Science, INFORMS, vol. 40(10), pages 1291-1304, October.
    10. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    11. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    12. Soon Ang & Sandra Slaughter & Kok Yee Ng, 2002. "Human Capital and Institutional Determinants of Information Technology Compensation: Modeling Multilevel and Cross-Level Interactions," Management Science, INFORMS, vol. 48(11), pages 1427-1445, November.
    13. Fleisch, Elgar & Tellkamp, Christian, 2005. "Inventory inaccuracy and supply chain performance: a simulation study of a retail supply chain," International Journal of Production Economics, Elsevier, vol. 95(3), pages 373-385, March.
    14. M. Bensaou & N. Venkatraman, 1995. "Configurations of Interorganizational Relationships: A Comparison Between U.S. and Japanese Automakers," Management Science, INFORMS, vol. 41(9), pages 1471-1492, September.
    15. Donald L. Iglehart & Richard C. Morey, 1972. "Inventory Systems with Imperfect Asset Information," Management Science, INFORMS, vol. 18(8), pages 388-394, April.
    16. Nicole DeHoratius & Adam J. Mersereau & Linus Schrage, 2008. "Retail Inventory Management When Records Are Inaccurate," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 257-277, November.
    17. Richard C. Morey & David A. Dittman, 1986. "Optimal Timing of Account Audits in Internal Control," Management Science, INFORMS, vol. 32(3), pages 272-282, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kök, A. Gürhan & Shang, Kevin H., 2014. "Evaluation of cycle-count policies for supply chains with inventory inaccuracy and implications on RFID investments," European Journal of Operational Research, Elsevier, vol. 237(1), pages 91-105.
    2. Gel, Esma S. & Erkip, Nesim & Thulaseedas, Anoop, 2010. "Analysis of simple inventory control systems with execution errors: Economic impact under correction opportunities," International Journal of Production Economics, Elsevier, vol. 125(1), pages 153-166, May.
    3. Sarac, Aysegul & Absi, Nabil & Dauzère-Pérès, Stéphane, 2010. "A literature review on the impact of RFID technologies on supply chain management," International Journal of Production Economics, Elsevier, vol. 128(1), pages 77-95, November.
    4. Wang, Fuqiang & Fang, Xiaoping & Chen, Xiaohong & Li, Xihua, 2016. "Impact of inventory inaccuracies on products with inventory-dependent demand," International Journal of Production Economics, Elsevier, vol. 177(C), pages 118-130.
    5. Xu, Jinpeng & Jiang, Wei & Feng, Gengzhong & Tian, Jun, 2012. "Comparing improvement strategies for inventory inaccuracy in a two-echelon supply chain," European Journal of Operational Research, Elsevier, vol. 221(1), pages 213-221.
    6. Rong Li & Jing‐Sheng Jeannette Song & Shuxiao Sun & Xiaona Zheng, 2022. "Fight inventory shrinkage: Simultaneous learning of inventory level and shrinkage rate," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2477-2491, June.
    7. Li Chen, 2021. "Fixing Phantom Stockouts: Optimal Data‐Driven Shelf Inspection Policies," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 689-702, March.
    8. Agrawal, Paras M. & Sharda, Ramesh, 2012. "Impact of frequency of alignment of physical and information system inventories on out of stocks: A simulation study," International Journal of Production Economics, Elsevier, vol. 136(1), pages 45-55.
    9. Rekik, Yacine & Syntetos, Aris & Jemai, Zied, 2015. "An e-retailing supply chain subject to inventory inaccuracies," International Journal of Production Economics, Elsevier, vol. 167(C), pages 139-155.
    10. Felipe Caro & A. Gürhan Kök & Victor Martínez-de-Albéniz, 2020. "The Future of Retail Operations," Manufacturing & Service Operations Management, INFORMS, vol. 22(1), pages 47-58, January.
    11. Cannella, Salvatore & Dominguez, Roberto & Framinan, Jose M., 2017. "Inventory record inaccuracy – The impact of structural complexity and lead time variability," Omega, Elsevier, vol. 68(C), pages 123-138.
    12. Adam J. Mersereau, 2015. "Demand Estimation from Censored Observations with Inventory Record Inaccuracy," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 335-349, July.
    13. Nicole DeHoratius & Adam J. Mersereau & Linus Schrage, 2008. "Retail Inventory Management When Records Are Inaccurate," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 257-277, November.
    14. Fan, Tijun & Tao, Feng & Deng, Sheng & Li, Shuxia, 2015. "Impact of RFID technology on supply chain decisions with inventory inaccuracies," International Journal of Production Economics, Elsevier, vol. 159(C), pages 117-125.
    15. Kaman, Cumhur & Savasaneril, Secil & Serin, Yasemin, 2013. "Production and lead time quotation under imperfect shop floor information," International Journal of Production Economics, Elsevier, vol. 144(2), pages 422-431.
    16. Shabani, Amir & Maroti, Gabor & de Leeuw, Sander & Dullaert, Wout, 2021. "Inventory record inaccuracy and store-level performance," International Journal of Production Economics, Elsevier, vol. 235(C).
    17. Ozbas, Oguzhan, 2005. "Integration, organizational processes, and allocation of resources," Journal of Financial Economics, Elsevier, vol. 75(1), pages 201-242, January.
    18. José Castro Caldas & Helder Coelho, 1999. "The Origin of Institutions: Socio-Economic Processes, Choice, Norms and Conventions," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 2(2), pages 1-1.
    19. Peter G. Klein & Michael E. Sykuta, 2010. "Editors’ Introduction," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 1, Edward Elgar Publishing.
    20. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:54:y:2008:i:4:p:627-641. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.