In-store replenishment procedures for perishable inventory in a retail environment with handling costs and storage constraints

At grocery retailers, customers prefer to withdraw the newest instead of the older erishable products that are displayed on shelves. To reduce the substantial cost of outdating caused by this withdrawal behavior, we suggest a procedure that limits the number of batches on the shelf with the same product lifetime to one. The remaining inventory is stored in the backroom, where we assume to have ample storage capacity. We show that for products with large available shelf space, short product lifetimes, expensive outdating, and low handling cost this procedure leads to substantial cost reductions compared with in-store replenishment procedures that do not take into account the withdrawal behaviour of the customers and the storage capacity of the shelf

Inventory replenishment in retail : the efficient full service strategy

In this paper we compare two inventory replenishment strategies for retailers and evaluate their effect on service levels, average inventory and the number of order lines. The first inventory replenishment strategy we consider is the Full Service strategy which is currently applied by many retailers and orders at a review period if either a case pack fits onto the shelves or the minimum reorder level is reached. This strategy is compared to an Efficient Full Service strategy where an order is placed only if at areview period the inventory position drops below the minimum reorder level; then as many case packs are ordered as possible taking into account the limited shelf space. This modified strategy will be compared with the current strategy. We will derive approximations for the key performance indicators and use simulation based on empirical data for thousands of SKU’s at multiple stores from a European retailer to quantify the improvement potential of the new strategy and to evaluate our approximations. The results show that, on average, inventory can be reduced with 22% and the number of handled order lines can be reduced with 17% when applying the Efficient Full Service strategy, while guaranteeing the same target customer service level. The approximations for the average inventory and the number of order lines perform very well at the store level and perform well at the SKU level. We also show that these approximations can be used as good indicators for the improvement potential of the new replenishment strategy

Static versus dynamic safety stocks in a retail environment with weekly sales patterns

Sales in European retail environments typically follow a weekly pattern having high sales at the end of the week and low sales at the start of the week. In this paper we compare two different ways of setting safety stock norms in a retail environment with weekly sales patterns. The first option is to set a single safety stock norm, which is constant throughout the week. The second option is a safety stock norm which is dynamic since it depends on the weekday. The inventory is controlled periodically and a lost sales environment is assumed. We study the impact of the dynamic safety stock on the inventory holding and shortage costs as well as on drivers of handling costs like the number of orderlines and the workload balance, since earlier research has shown that handling costs are relatively large for retailers. We use a full factorial experiment and simulation to evaluate both inventory replenishment strategies

A replenishment policy for a perishable inventory system based on estimated aging and retrieval behavior

So far the literature on inventory control for perishable products has mainly focused on (near-) optimal replenishment policies for a stylized environment, assuming no leadtime, no lot-sizing, stationary demand, a first in first out retrieval policy and/or product life time equal to two periods. This literature has given fundamental insight in the behavior and the complexity of inventory systems for perishable products. In practice, many grocery retailers have recently automated the inventory replenishment for non-perishable products. They recognize they may need a different replenishment logic for perishable products, which takes into account e.g. the age of the inventory in the system. Due to new information technologies like RFID, it now also becomes more economically feasible to register this type of information. This paper suggests a replenishment policy for perishable products which takes into account the age of inventories and which requires only very simple calculations. It will be shown that in an environment, which contains important features of the real-life retail environment, this new policy leads to substantial cost reductions compared with a base policy that does not take into account the age of inventories

Excess shelf space in retail stores : an analytical model and empirical assessment

Marketing and operations responsibilities meet in retail stores on the shelves. The shelf is the location where any product meets the consumer, whereas the shelf is also the final inventory location in the retail supply chain. Marketing assumes that the presence of inventory drives demand and therefore requires excellent operations. In operations, the main concern is with the trade-off between inventory holding cost on the shelf and the cost of replenishment. We gathered empirical data at a grocery retail chain and were able to combine marketing and operations data into a single database. This provided us the opportunity to conduct a unique analysis. We could compare the results of the space allocation decisions of the marketers with a basic analytic model that incorporates aspects of marketing and operations. Based on this comparison, we argue that significant amounts of excess shelf space exist for a large part of the assortment of a retailer. Excess shelf space is retail space that is not required to carry out the current operations with respect to customer service and costs. We also observed that the cost of replenishment is non-linear and dominates the inventory holding cost. Therefore, excess shelf space cannot easily be eliminated. Instead, excess shelf space in the presence of a non-linear cost of replenishment offers enormous opportunities for the development of new supply chain coordination mechanisms

Ordering behavior in retail stores and implications for automated replenishment

Retail store managers may not follow order advices generated by an automated inventory replenishment system if their incentives dier from the cost minimization objective of the system or if they perceive the system to be suboptimal. We study the ordering behavior of retail store managers in a supermarket chain to characterize such deviations in ordering behavior and investigate their potential drivers. Using orders, shipments, and POS data for 19; 417 item-store combinations over 5 stores, we nd that store managers systematically modify automated order advices by advancing orders from peak to non-peak days. We show that order advancement is explained signicantly by hypothesized product characteristics, such as case-pack size relative to average demand per item, net shelf space, product variety, demand uncertainty, and seasonality error. Our results suggest that store managers add value. They improve upon the automated replenishment system by incorporating two ignored factors: in-store handling costs and sales improvement potential through better in-stock. We test a heuristic procedure, based on our regression results, to modify order advices to mimic the behavior of store managers. Our method performs better than the store managers by achieving a more balanced handling workload with similar average days of inventory

To co-locate or not? : location decisions and logistics concentration areas

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A model for store handling : potential for efficiency improvement

In retail stores, handling of products typically forms the largest share of the operational costs. The handling activities are mainly the stacking of the products on the shelves. While the impact of these costs on the profitability of a store is substantial, there are no models available of the different drivers influencing store handling. In this paper, a study of the shelf stacking process is presented. First, a conceptual model based on warehouse operations is derived. It is shown that handling costs are non-linear with the number of consumer units stacked. Secondly, by means of a motion and time study, data has been collected in four grocery stores of two different European retail companies. The model clearly demonstrates the impact of the most important drivers for handling efficiency: case pack size, number of case packs stacked simultaneously, and the stacking regime. Efficiency gains of 8-49% by changing the driver parameter value are identified. Based on the presented insights both retail companies have decided to structurally change their current operations