Operations research: principles and practice, 2nd ed.
Operations research: principles and practice, 2nd ed.
Counting your customers: who are they and what will they do next?
Management Science
Customer Service Competition in Capacitated Systems
Manufacturing & Service Operations Management
Note: The Newsvendor Model with Endogenous Demand
Management Science
Asymmetric Consumer Learning and Inventory Competition
Management Science
Dynamic Catalog Mailing Policies
Management Science
Asymmetric Consumer Learning and Inventory Competition
Management Science
The Option Value of Returns: Theory and Empirical Evidence
Marketing Science
Structural Estimation of the Effect of Out-of-Stocks
Management Science
Predict on-shelf product availability in grocery retailing with classification methods
Expert Systems with Applications: An International Journal
RFID-enabled shelf replenishment with backroom monitoring in retail stores
Decision Support Systems
The impact of false-negative reads on the performance of RFID-based shelf inventory control policies
Computers and Operations Research
Salesforce Contracting Under Demand Censorship
Manufacturing & Service Operations Management
Integrated Computer-Aided Engineering
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There is now an extensive theoretical literature investigating optimal inventory policies for retailers. Yet several recent reviews have recognized that these models are rarely applied in practice. One explanation for the paucity of practical applications is the difficulty of measuring how stockouts affect both current and future demand. In this paper, we report the findings of a large-scale field test that measures the short- and long-run opportunity cost of a stockout. The findings confirm that the adverse impact of a stockout extends to both other items in the current order as well as future orders. We show how the findings can be used to provide input to inventory planning models and illustrate how failing to account for the long-run effects of a stockout will lead to suboptimal inventory decisions. We also demonstrate how the findings can be used in a customer lifetime value model. Finally, the study investigates the effectiveness of different responses that firms can offer to mitigate the cost of stockouts. There is considerable variation in the effectiveness of these responses. Offering discounts to encourage customers to backorder rather than cancel their orders is widely used in practice, but that was the least profitable of the responses that we evaluated. The findings have important implications for retailers considering the use of discounts as a response to stockouts.