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  • Winter 2014
  • Article
  • California Management Review

Retail Inventory: Managing the Canary in the Coal Mine!

By: Vishal Gaur, Saravanan Kesavan and Ananth Raman
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Abstract

Retail inventory is a statistic that is closely watched by retailers as well as their investors, lenders, and suppliers. Retailers not only benefit from inventory, but also bear the cost of excess inventory. Investors, lenders, and suppliers interpret this statistic for signs of the retailer's health, future sales prospects, and impending costs. While prior research on inventory has typically focused primarily on the retailer's profit and cash flow, this paper synthesizes the perspectives of investors, lenders, and suppliers and shows that inventory turns, a commonly used metric to identify excess inventory, has limitations that reduce its utility for all these stakeholders. This paper presents a new metric, adjusted inventory turns, which overcomes the drawbacks of inventory turns and can be uniformly utilized by all stakeholders to assess whether a retailer is carrying too much or too little inventory. We explain applications of the metric with examples and lay out prescriptions for retailers.

Keywords

Financial Condition; Retail Industry

Citation

Gaur, Vishal, Saravanan Kesavan, and Ananth Raman. "Retail Inventory: Managing the Canary in the Coal Mine!" California Management Review 56, no. 2 (Winter 2014): 55–76.
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About The Author

Ananth Raman

Technology and Operations Management
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More from the Authors
  • Hamptonshire Gas and Convenience By: Ananth Raman, Nathan Craig and Ehsan Valavi
  • Human-Computer Interactions in Demand Forecasting and Labor Scheduling Decisions By: Caleb Kwon, Ananth Raman and Jorge Tamayo
  • Innovations in Retail Operations: Thirty Years of Lessons from Production and Operations Management By: Marshall Fisher and Ananth Raman
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