Inventory Record Inaccuracy in Grocery Retailing: Impact of Promotions and Product Perishability, and Targeted Effect of Audits

Abstract

We report the results of a study to identify and quantify drivers of inventory record inaccuracy (IRI) in a grocery retailing environment, a context characterized by frequent promotions and a high share of perishable items. The analysis covers ~24,000 stock keeping units (SKUs) sold in 11 stores. We find that IRI is positively associated with average inventory level, restocking frequency, and whether the item is perishable, and negatively associated with promotional activity. We also conduct a field quasi-experiment to assess the marginal effect of stock counts on sales. While performing an inventory audit is found to lead to an 11% store-wide sales lift, the audit has heterogeneous effects with all the sales lift concentrated on items exhibiting negative IRI (i.e., where system inventory is greater than actual inventory). The benefits of inventory audits are also found to be more pronounced on perishable items, that are associated with higher IRI levels. Our findings inform retailers on the appropriate allocation of effort to improve IRI and reframe stock counting as a sales-increasing strategy rather than a cost-intensive necessity.