Providing products on store shelves is a key function of retailing,
but it comes at a price. Retailers spend 5% of the global $13.9
trillion sales on logistics. 45% of logistics expenses are caused by
store inventory handling and holding. Improvements in store
inventory management are therefore a primary objective for retail
managers. Over the last decades, research and practice have devoted
considerable attention to reducing inventory management costs.
Retailers improved logistics efficiency and introduced new
technology in the pursuit of providing constantly high levels of
on-shelf availability. However, this approach may be very costly if
shopper demand varies.
This research therefore investigates the benefits of adjusting on-shelf availability to account for demand variation. It shows empirically when differentiated levels of on-shelf improve store inventory management costs over non-adjusted availability provision. It develops and applies Service-Dominant (S-D) logic, a structuring framework from marketing based around value co-creation in service networks, and transcends the traditional role of retail inventory from the protection against demand towards the goal of service provision and value-creation with shoppers.
The S-D logic view of on-shelf availability is addressed in three complementary levels: theory, conceptual development and empirical research. Theoretically, this research reviews comprehensively and synthesizes the advances and applications of S-D logic since its introduction in 2004. It suggests redundancies in S-D logic, identifies future topic areas and guides research and practice in its application and development. Specifically, it points to the investigation of value attenuation - opposed to co-creation - and the empirical validation of phenomena uncovered by the S-D logic perspective.
Conceptually, this research transcends the traditional view of the effects of retail out-of-stocks on sales losses to a S-D logic view that unveils out-of-stocks to attend value across suppliers, retailers, shoppers and their respective networks. It develops a model of value co-creation where manufacturer supply and shopper demand meet in the retailer's realm. The model identifies the shopper as an active entity whose response to out-of-stocks redistributes value within the retail ecosystem. It proposes that co-creation of value through on-shelf availability takes place in the spatio-temporal integration of actor resources and suggests to improve value creation by allowing on-shelf availability to match shopper demand variation.
Empirically, this research uses inventory modeling to investigate the value of adjusting on-shelf availability to account for demand variation. It transfers the S-D logic concept into a single-location, single-item periodic-review lost sales inventory model with non-stationary demand. In a first step, it analyzes numerically the performance of inventory policies taking into account varying degrees of demand variation using a cost structure comprised of costs for ordering, handling, holding, and out-of-stocks. In a second step, it uses a real life replenishment setup and actual sales data to investigate the value of accounting for demand variation in practice, putting a novel focus on demand variation within and across days. The analysis shows the value of accounting for demand variation to retailers is substantial, especially when demand varies while fix costs are low.
This research provides implications for retail managers and points towards further research in S-D logic, on-shelf availability and inventory modeling. On a broader level, it suggests moving distribution thought and management towards a goal of value co-creation to address availability challenges in supply chains.
The dissertation can also be accessed via the database of electronically published dissertations of the University of St.Gallen (EDIS) here.
Service-Dominant logic; on-shelf availability; inventory modeling
|project||Demand-based on-shelf availability|
|university||University of St.Gallen|
|evaluator||Prof. Dr. Stölzle, Wolfgang ; Prof. Dr. Rudolph, Thomas|
|publisher||Rohner + Spiller AG (Winterthur)|
|date of appearance||2012|
|series title||Dissertationen (4008)|
|profile area||SoM - Business Innovation|
|citation||Ehrenthal, J. C. (2012). A Service-Dominant Logic View of Retail On-Shelf Availability, University of St.Gallen, Thesis. Winterthur: Rohner + Spiller AG.|