How inventory management systems mistreat retail project quantity items and other bimodally distributed products

Abstract

To insure appropriate inventory levels in retail outlets, replenishment managers concern themselves with both timing of shipments and quantity of product available within the store. While organizations regularly use inventory management or enterprise resource planning systems to procure inventories, we find that these systems can incorrectly manage a sizable group of products found within retail organizations. To illustrate, we explore a collection of goods called retail project quantity items, subsequently explaining how customers purchase and use these items in a fashion that leads to a bimodal distribution of demand. We then employ simulations to demonstrate how the use of a bimodal lead-time demand distribution, rather than a normal or Poisson distribution, improves respective product service levels. Based on these results, we offer a modified reorder point heuristic and discuss how inventory managers should alter existing replenishment processes to insure sufficient stocks of retail project quantity items. Lastly, we discuss broader implications for inventory management systems and bimodally distributed products.

Keywords:

• Retail assortment planning
• category management
• purchasing
• procurement
• sourcing retail operations