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Channel Integration, Sales Dispersion, and Inventory Management

Author

Listed:
  • Santiago Gallino

    (Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755)

  • Antonio Moreno

    (Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • Ioannis Stamatopoulos

    (Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

Abstract

We study the effects of the introduction of cross-channel functionalities on the overall sales dispersion of retailers and the implications of these effects for inventory management. To do that, we analyze data from a leading U.S. retailer who introduced a “ship-to-store” (STS) functionality that allows customers to ship products to their local store free of charge when those products are not available in their local store. Based on the fact that stores prioritize carrying products for which local demand is high, we test the hypothesis that introducing the STS functionality increased the retailer’s overall sales dispersion. We find that, on average, the contribution of the 90% lowest-selling products to total sales increased by 0.75 percentage points, increasing sales dispersion. Calibrating conventional inventory-ordering models, we show that to respond optimally to the observed increase in dispersion, the retailer would need to increase its cycle and safety inventories by approximately 2.7%. Our paper points out the effect of an increasingly important retail phenomenon (channel integration) on a key factor for inventory management (sales dispersion).

Suggested Citation

  • Santiago Gallino & Antonio Moreno & Ioannis Stamatopoulos, 2017. "Channel Integration, Sales Dispersion, and Inventory Management," Management Science, INFORMS, vol. 63(9), pages 2813-2831, September.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:9:p:2813-2831
    DOI: 10.1287/mnsc.2016.2479
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