Retail supply chain service levels: the role of inventory storage

Purpose In today’s competitive retail industry the most critical success factor is customer service which is indicated by product availability. It is argued that in the retail industry, product availability is an important measure of quality. The single most vital decision that every retailer needs to make is, how to maximize service level while keeping minimum inventory level. The purpose of this paper is to explain and demonstrate the relationship between inventory level and customer service level. Design/methodology/approach This study examines an inventory system utilizing a simulation model based on company data obtained from a retail fast-moving-consumer goods chain operating in Thailand. Findings The results suggest that the achievement of a responsive service level is dependent on managing an efficient supply chain in addition to logistics cost reductions. The findings also reveal the effect the inventory level has on the service level. From the findings of this study, demand variability and service level have been found to have the most significant influence on the inventory level. From the findings, it can also be shown that real and accurate information is very important for service supply chains. Practical implications The paper promotes the importance of having an appropriate inventory management policy for a retail chain which should be driven by retail companies in order to better balance inventory and service levels. Originality/value The relationship between the inventory level and customer service level lead to different outcomes at different combinations of inventory and service levels. Significant relationships were found between inventory and service levels.