Effects of ticket-switching on inventory management: Actual vs. information system-based data

a r t i c l e i n f o Keywords: Ticket-switching Retail store Information system-based inventory Actual inventory Inventory inaccuracies in retail stores result from a combination of controllable and uncontrollable factors such as theft, damage, spoilage, misplacement, process errors, ticket-switching, among others. While most shrinkage types affect only one (type of) item, ticket-switching simultaneously affects the inventory of multiple items. Ticket-switching is the process of switching the identifier or ticket of an expensive item with that from a (relatively) cheap item with the explicit intent of purchasing the expensive item by paying the cheap item's price. Ticket-switching incidents distort inventory records in store information systems. Inventory management decisions based on such data from store information systems are therefore sub-optimal. We study the effects of ticket-switching on optimal order quantity of the involved items and the resulting profit. Under uniformly distributed demand and yield conditions, we find that ticket-switching increases (decreases) the optimal order quantity of the expensive (cheap) items. Surprisingly, results from our analysis indicate that profit on expensive (cheap) items is higher (lower) in the presence of ticket-switching behavior than otherwise. Global Retail Theft Barometer surveyed 1187 retailers in 43 countries worldwide and found that retail shrinkage in 2011 cost the industry an estimated US$ 119 billion, which is about 1.45% of overall sales. The highest proportion of shrinkage were reported by retail categories that include apparel, health/beauty and DIY. This should not be dismissed as an insignificant proportion based purely in terms of the absolute percentage, since even a 2 to 3% sales loss can amount to about 25% loss in profit in this industry with tight profit margins (e.g., [21]). Moreover , reduction due to shrinkage from 2% to 1% is tantamount to about 40% increase in sales (e.g., [1,5]). The increased use of EAS (Electronic Article Surveillance) over the years has reduced the occurrence of shrinkage in retail store settings [6,9]. A general consequence of a shrinkage event is the loss or disappearance of items. While the source of shrinkage can take many forms]) and ticket-switching [25, 26], the loss per shrinkage incident depends on the number and type of items involved, the short-term demand for such items and their substitutes, the temporal aspect of that item (e.g., fashion apparel, perishables), and the complexity of the item's replenishment process. Regardless, while a majority of shrinkage incidents affect only one (type of) item (e.g., …