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Demand uncertainty and inventory turnover performance: An empirical analysis of the US retail industry

Gülşah Hançerlioğulları (Department of Industrial Engineering, Istanbul Technical University, Istanbul, Turkey)
Alper Şen (Department of Industrial Engineering, Bilkent University, Ankara, Turkey)
Esra Ağca Aktunç (Department of Industrial Engineering, Kadir Has University, Istanbul, Turkey)

International Journal of Physical Distribution & Logistics Management

ISSN: 0960-0035

Article publication date: 4 July 2016

Abstract

Purpose

The purpose of this paper is to investigate the impact of demand uncertainty on inventory turnover performance through empirical modeling. In particular the authors use the inaccuracy of quarterly sales forecasts as a proxy for demand uncertainty and study its impact on firm-level inventory turnover ratios.

Design/methodology/approach

The authors use regression analysis to study the effect of various measures on inventory performance. The authors use a sample financial data for 304 publicly listed US retail firms for the 25-year period from 1985 to 2009.

Findings

Controlling for the effects of retail segments and year, it is found that inventory turnover is negatively correlated with mean absolute percentage error of quarterly sales forecasts and gross margin and positively correlated with capital intensity and sales surprise. These four variables explain 73.7 percent of the variation across firms and over time and 93.4 percent of the within-firm variation in the data.

Practical implications

In addition to conducting an empirical investigation for the sources of variation in a major operational metric, the results in this study can also be used to benchmark a retailer’s inventory performance against its competitors.

Originality/value

The authors develop a new proxy to measure the demand uncertainty that a firm faces and show that this measure may help to explain the variation in inventory performance.

Keywords

Acknowledgements

This study has started when the third author was affiliated with Virginia Polytechnic Institute and State University.

Citation

Hançerlioğulları, G., Şen, A. and Aktunç, E.A. (2016), "Demand uncertainty and inventory turnover performance: An empirical analysis of the US retail industry", International Journal of Physical Distribution & Logistics Management, Vol. 46 No. 6/7, pp. 681-708. https://doi.org/10.1108/IJPDLM-12-2014-0303

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited