Concepedia

Relationships between inventory, sales and service in a retail chain store operation

Chris Dubelaar, Garland Chow, Paul D. Larson

International Journal of Physical Distribution & Logistics Management · 2001 · 106 citations · 11 references

Open access

TL;DR

Effective inventory management is critical to retailing success, yet little empirical research examines the relationships between inventory, sales, and customer service. The study develops and tests hypotheses about retail inventory using a survey of 101 chain store units. The authors surveyed 101 chain store units, achieving a 75 % response rate, to develop and test hypotheses about retail inventory. Significant positive relationships were found between inventory, service, and sales, inventory is proportional to the square root of sales, product variety increases inventory, service level grows exponentially with inventory, and demand uncertainty does not affect inventory levels.

Abstract

Effective inventory management is critical to retailing success. Surprisingly, there is little published empirical research examining relationships between retail inventory, sales and customer service. Based on a survey of 101 chain store units, this paper develops and tests a series of hypotheses about retail inventory. Seventy‐five percent of the store owners/managers responded to the mail survey. As expected, significant positive relationships were found between inventory, service and sales. Specifically, support was found for the theory that inventory is a function of the square root of sales. Also, greater product variety leads to higher inventory, and service level is an exponential function of inventory. Finally, demand uncertainty was found to have no apparent effect on inventory levels.