The process of retailing and distributing goods has become increasingly complex in recent years. Information technologies have created more sophisticated methods for distributing and retailing products, and for coordinating movements of goods from the manufacturer to the consumer. The goal of the proposal is to enhance understanding of the retail and distribution infrastructure of the economy and, in particular, to provide an estimate of the benefits of innovation in inventory monitoring technology.
This research focuses on one of the first Point of Service wireless networks to ever be established for monitoring inventory. This network was installed at a large university to improve product stocking at all vending machines on the campus. The vending company implemented changes to their distribution practices after the installation of the network, and we have data from before and after these changes were implemented. The introduction of the inventory monitoring technology has two potential benefits. First, better inventory technology may reduce the costs of restocking by allowing for more efficient preparation of inventories and distribution of products. Second, the ability to frequently monitor stocks of inventory can improve a firm's timing of restocking visits, leading to more efficient levels of product availability. The researchers propose a dynamic model of firm behavior that captures the relevant features of the industry under study. The model incorporates both the presence of lower inventory restocking costs, as well as the ability of the firm to improve the timing of its restocking visits. Our main goal is to precisely quantify these two benefits of monitoring technology to the firm.
The preliminary research results show the importance of human factors in technological change. A technology designed to improve the efficiency of the supply chain at least initially caused performance to deteriorate because humans became overly reliant on the new technology. The models developed in this study can also be used to evaluate returns to investments in technology or how models could be used to better measure the economic impact of innovative technologies and hence returns to science investments.
Broader Impacts: Empirical studies in Industrial Organization have been very successful in understanding consumer demand and firm supply decisions for markets in which the retail setting and distribution arrangements are unimportant relative to production decisions. For many industries, however, distribution methods play a critical role in the final sale of the good. This project will inform policy-makers about several issues. First, it would estimate the benefit to firms and consumers of an innovation in the distribution process that streamlines restocking tasks and potentially changes product availability in the market. Second, our research would shed light on organizational innovation and labor market outcomes that result from inventory monitoring technology. Finally, innovations like Point of Service wireless networks represent a creative deployment of relatively incremental technological innovation (a local wireless network). Much more drastic technological rollouts are currently underway using technologies such as Radio Frequency Identification at major retail and health organizations nationwide. Understanding the effects of new distribution technologies by using the laboratory of the vending industry should help both firms and researchers to better analyze the more complex inventory management decisions of large retail organizations. The lessons learned from this early deployment of technology will be valuable as related technologies continue to be adopted.
