The implications of judgemental interventions into an inventory system

• Main Author: Kholidasari, I.
• Published: University of Salford 2013
• Subjects: 658
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.588724

Physical inventories constitute a considerable proportion of companies’ investments in today’s competitive environment. The trade-off between customer service levels and inventory investments is addressed in practice by formal quantitative inventory management (stock control) solutions. Given the tremendous number of Stock Keeping Units (SKUs) that contemporary organisations deal with, such solutions need to be fully automated. However, managers very often judgementally adjust the output of statistical software (such as the demand forecasts and/or the replenishment decisions) to reflect qualitative information that they possess. In this research we are concerned with the value being added (or not) when statistical/quantitative output is judgementally adjusted by managers. Our work aims to investigate the effects of incorporating human judgement into such inventory related decisions and it is the first study to do so empirically. First, a set of relevant research questions is developed based on a critical review of the literature. Then, an extended database of approximately 1,800 SKUs from an electronics company is analysed for the purpose of addressing the research questions. In addition to empirical exploratory analysis, a simulation experiment is performed in order to evaluate in a dynamic fashion what are the effects of adjustments on the performance of a stock control system. The results on the simulation experiment reveal that judgementally adjusted replenishment orders may improve inventory performance in terms of reduced inventory investments (costs). However, adjustments do not seem to contribute towards the increase of the cycle service level (CSL) and fill rate. Since there have been no studies addressing similar issues to date, this research should be of considerable value in advancing the current state of knowledge in the area of inventory management. From a practitioner’s perspective, the findings of this research may guide managers in adjusting order-up-to levels for the purpose of achieving better inventory performance. Further, the results may also contribute towards the development of better functionality of inventory support systems (ISS).