The use of new telemetry-based remote inventory monitoring can make many retail industries more responsive and much more profitable, says Richard Metters, associate professor of information systems and operations management at Emory University’s Goizueta Business School. In a new research paper titled the “Value of Information for Managing Inventory Remotely,” Metters and coauthors Michael Ketzenberg and Neil Geismar, both at Texas A&M University, and Erwin van der Laan of Erasmus Universiteit in the Netherlands, look at data capture at these “unattended points of sale.”

Problems with unattended points of sale are well known. In a prior Knowledge@Emory article, Sundar Bharadwaj, a professor of marketing at Goizueta, studied the grocery industry and found that a typical retailer loses about 4 percent of sales due to not having items on the shelves. Other studies in electronics retailing and bookstores have found that when the customer thinks a store is out of stock, there really is inventory in the store, but it’s in the back room where the customer can’t see it. Employees don’t restock the shelves because they don’t know the shelf is empty.

Scanner data from sales should allow firms to restock appropriately, but Metters notes, this data has significant problems. Among them: customers or employees that steal merchandise are usually not kind enough to use the scanners. Also, customers or employees who restock goods in the wrong place still leave the right place with an empty shelf. The alternative to empty shelves is employing a sea of workers to constantly monitor inventory levels of all products. Most firms decide on a middle course whereby employees check inventory on a regular cycle.

A wide assortment of new technology is now available to remotely monitor inventory levels. Sensors report inventory levels to a remote computer, which triggers an employee to reorder or restock. But technology has its costs. To determine the value of this new technology, Metters and coauthors investigated the most extreme case involving a lack of information about inventory: vending machines. Although this work encompasses all of retail, the vending machine industry is big enough on its own, accounting for $46 billion in U.S. sales in 2006.

Vending machines are usually serviced by firms located miles away. Employees, therefore, can't simply walk over and check the inventory status. According to Metters, the typical solution is for a machine to be visited and restocked, for instance, twice a week. The vending machine firm loads a truck with what they think will be more than enough inventory to service 20 or so machines, and then the driver visits all the machines and stocks them accordingly. A typical firm will service several thousand machines and have a fleet of trucks. 

To determine the potential benefit of this technology, data had to be gathered on the costs involved. Metters collected data the old fashioned way. With the help of the local Atlanta vending firm Southern Refreshment Services, Metters rode the truck and collected data firsthand. While helping stock machines, he gathered data on driving times, stocking times, and inventory in the machines. Metters notes, “The alarm clock for route drivers rings at 4:00 am. For manufacturing firms and warehouses, they want to stock up before employees or customers get there.”

To use this new technology, businesses have to change the way they operate. The authors define “static scheduling” as visiting and refilling every machine during a specific time period—the usual way of doing business. However, the use of “smart machines” that provide inventory reports remotely make it possible for the servicing company to restock only when needed. They add, “This operational mode is called dynamic scheduling in the trade. The value of information is measured as the percentage improvement in profit achieved through dynamic scheduling, relative to static scheduling”.

Metters and coauthors determined that the “dynamic” scheduling environment, utilizing key real-time information on inventory, resulted in reduced visits and service—sometimes. It was found that this technology was not a cure-all. If sales are very steady, the same day after day, the remote sensing technology is all cost and no benefit. However, if sales are big one day and small the next, it was found that installing this technology can improve profits up to 30 percent.