Effects of Inventory Inaccuracy in Joint Marketing and Inventory Decisions
The success of a firm depends upon matching demand with supply, and supply uncertainty is a major obstacle for firms to achieve this goal. In particular, supply uncertainty due to inventory inaccuracy is prevalent in retail industry. According to Raman, et al. (2001), 65％ of the inventory records of a leading U.S. Retailer were inaccurate, and the magnitude of the errors on average was 35％ of the target stock level. While inventory inaccuracy can lead to lost revenue and poor service, lack of coordination between marketing and inventory decisions can further aggravate the adverse e .ect of inventory inaccuracy. Since marketing and operations departments tend to operate independently in most firms, e .ective coordination between marketing and inventory decisions, while crucial, is di .cult to achieve.Motivated by the above observations, we develop a model to study the impact of inventory inaccuracy in a retail setting. Specifically, we consider a firm who sells one product in a single period. The firm faces supply uncertainty due to inventory inaccuracy and needs to make two major decisions - the marketing and stocking decisions. The marketing decision is to determine the amount of sales e .ort so as to acquire some target demand level and the subsequent stocking decision is to determine the amount of inventory to meet the acquired demand. We consider a retail environment, where the retail firm does not have much control over the product price p, but can a .ect the product demand through various sales e .orts such as advertising,promotions, or display locations in the store. Specifically, we assume that the demand D is a function of sales e .ort, with a demand acquisition cost A(D). As it is costly for a firm to exert sales e .ort to acquire demand, we assume that cost function A(.) is strictly increasing and convex. To simplify our exposition, we assume no shortage cost for unmet demand and no salvage value for any leftover inventory. However, our analysis can be easily extended to include these two additional costs, but they do not add much to the insights provided.
Shaoxuan Liu Kut C. So Fuqiang Zhang
The Paul Merage School of Business, University of California, Irvine
国际会议
2007 International Conference on Manufacturing & Service Operations Management(2007制造与服务运作管理国际学术会议)
北京
英文
2007-06-18（万方平台首次上网日期，不代表论文的发表时间）