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Nicole DeHoratius
DBA in Technology and Operations Management

Dissertation Chair: Prof. A. Raman

Critical Determinants of Retail Execution

Drawing on literature from multiple fields and extensive data from two retail chains, this thesis analyzes two factors influencing retail performance: inventory record inaccuracy and store manager incentive design. Each factor is examined independently and conclusions are drawn about the significance of each to retail operations.

Retail organizations increasingly rely on automated inventory management tools to track sales, forecast demand, and determine the quantity of items needed to replenish store shelves. Examining the records contained in the automated system of one retailer, we find a large proportion, 65%, to be inaccurate. That is, the recorded inventory quantity of an item failed to match the quantity found in the store. We demonstrate that several product related factors (e.g., item cost), process related factors (e.g. distribution methodology), and store characteristics (e.g., inventory density, product variety, and audit frequency) are associated with inventory record inaccuracy. The implications of record inaccuracy on the ability of retailers to appropriately manage inventory is discussed and ways in which retailers can address the problem of record inaccuracy through a combination of inspection policies and process improvement is highlighted.

While retail organizations utilize technology to manage certain activities, they depend on store managers for others. Store managers play a critical role in overseeing the activities of store employees, providing sales support, and managing processes essential to store operations (e.g., scheduling workers, displaying merchandise). Performance-based incentives are often used to both motivate store managers to work and to direct their effort among the multiple activities for which they are accountable. This research examines one retailer's use of a change in incentive plan to alter the activities of its store managers and improve profits. We show that this retailer, by adjusting the degree to which store managers were rewarded for sales generating activities relative to expense controlling activities, increased its profits by an estimated 4% of sales. This finding underscores the importance of balancing the different rewards given to multi-tasking agents and provides additional support for the theory that incentive design influences employee behavior.

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