ECR Inventory Accuracy Research Study

ECR conducted a webinar of a new research study on the problem of inventory record inaccuracy. The research aimed to answer three key questions:

1. To what extent are inventory records wrong?

2. How does inventory record accuracy deteriorate over time?

3. How does an improvement in inventory records affect sales?

Working closely with seven retailers, the findings confirm that for the retailers in this study 60% of inventory records are wrong, and that when the inventory records are corrected that sales can increase by 4 – 8%. As one of the retailer members of ECR shared, their board regularly pore over and inspect new ways to grow retail sales that most often require big investment and high risk, yet here we have new research that shows that by just improving the accuracy of their inventory records they can drive sales, with little risk and potentially, a low level of investment.

There is a growing body of evidence advanced in both the academic and practitioner literature suggesting that retailers’ inventory records are inaccurate to a significant extent. And it is reasonable to assume that the higher the inventory record inaccuracy (IRI), the higher the impact on sales. But what does this mean in real terms? Up to the present day, we did not know. However, based on the work described in this report, we now do know that for a typical European grocery retailer with €10 billion in sales, fixing the IRI can lead to a €0.4 – €0.8 billion
sales uplift. It is only reasonable to expect that other consequential financial benefits would also emerge (such as labour savings from reduced gap scans and lower inventory investments) although those have been outside the scope of this project.

We have undertaken our research working closely with seven European retailers (in four European countries) in the grocery/general merchandise and fashion/apparel sectors. A structured test-control type experiment was used, according to which test stores are subjected to stock counts at some particular point in time, whereas control stores are not, allowing us to measure the effect of reconciling (or not reconciling) the stock records on sales. Our analysis covered approximately 1 million stock keeping units (SKUs) sold in about 100 stores; such data is of a different order of magnitude to anything previously attempted in the academic and practitioner literature, leading to important, reliable and trustworthy conclusions.

We find that about 60% of the SKUs analysed are affected by inventory record inaccuracies. The average magnitude of inventory record inaccuracies for the affected SKUs is found to be about +6.6 and -6.0 units for positive and negative discrepancies, respectively. Correcting such inaccuracies leads to approximately 4% to 8% of increased sales in the participating retailers. Although it is natural to expect that the higher the IRI the higher the sales uplift (that results from fixing it) will be, this actually also depends on SKU prices. Interestingly, very ‘accurate’ retailers (with high profit margins / high prices) are found to also benefit tremendously from truing up their inventory records.
So, no matter how accurate your inventory records are, this report demonstrates that there is a lot to gain if you pursue further accuracy.

The webinar explored the research objectives and findings in more detail, and importantly, propose a number of interventions that retailers and manufacturers could consider and act upon. Following the presentation of the findings, Hannah Newton, Business Intelligence Manager for Tesco PLC, shared a retailer perspective on the findings, and implications for retailer organisations.

Please follow this link to download your free copy of the report:

View and Download Final Report