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Understanding the Value of Inventory Record Accuracy

Understanding the Value of Inventory Record Accuracy

With billions invested in replenishment and forecasting systems, reliant on very accurate inventory records, it would seem almost a rude question to ask whether inventory record accuracy matters. However, given that the published evidence suggests that as many as 65% of inventory records are wrong, there seems little evidence of major change projects on inventory record accuracy amongst ECR Group members. This finding is perhaps even more surprising given the growing importance of online sales, where shoppers will want to know with certainty that the item is in stock before they order or travel to a store. What explains this apparent indifference and inertia?

One hypothesis could be that retailers already know that most inventory record errors do not negatively impact sales, as the inventory record error does not necessarily mean that the shelf is empty, and even if it is, there may be a presumption that the shopper will simply switch to buy another product, therefore, no lost sale or benefit in improving inventory record accuracy.

However, this may also not be the case, in Group discussions at various ECR meetings, retailers have reported that when they 'true up' inventory records they can evidence a 3-6% lift in sales. In fact, this evidence is also in line with the uplift in sales being reported by Apparel retailers that are attaching RFID tags to their products, where the main reason they cite for the increase in sales has been that RFID has been able to improve their inventory record accuracy from 65% being 'wrong' to 98% of them being 'right'.

The research is being undertaken by academics with deep expertise in this field from three academic institutions, Cardiff Business School, EM EM-LYON Business School (France) and the Technische University Darmstadt (Germany). Their first research deliverable will be to establish, and turn into a credible and inarguable number, the impact on sales when inventory records go from being inaccurate to accurate, by store format and by category.

The second phase will be to establish the current best practices retailers are using to improve the accuracy of inventory records and identify the emerging techniques and technologies that could be used. The results from the first phase of the research will be shared with the members of the ECR Community Shrink and OSA Group in the first half of 2018.