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The Value of Information for Managing Retail Inventory Remotely

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Abstract

An important difference between both manufacturing and wholesaling vs. retail is the information available concerning inventory. Typically, far less information characterizes retail. Here, an extreme environment of information shortfall is examined. The environment is technically termed “unattended points of sale,” but colloquially called vending machines. Once inventory is loaded into a machine, information on demand and inventory level is not observed until the scheduled reloading date. Technological advances and business process changes have drawn attention to the value of information (VOI) in retail inventory in many venues. Moreover, technology is now available that allows unattended points of sale to report inventory information. Capturing the value of this information requires changes in current business practice. We demonstrate the value of capturing information analytically in an environment with restrictive demand assumptions. Experiments in an environment with realistic demand assumptions and parameter values show that the VOI depends greatly on operating characteristics and can range from negligible effects to increasing profitability 30% or more in actual practice.

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