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University Microfilms 300 North Zeeb Road Ann Arbor, Michigan 4B106 A Xerox Education Company s-1 | 72-21,028 I WALTER, Jr., Clyde Kenneth, 1942- | AN EMPIRICAL ANALYSIS OF TWO STOCKOUT MODELS. I The Ohio State University, Ph.D., 1972 \ Business Administration j University Microfilms, AXEROX Company , Ann Arbor, Michigan ©Copyright by Clyde Kenneth Walter, Jr. 1972 THIS DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED. AN EMPIRICAL ANALYSIS OF TWO STOCKOUT MODELS DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Clyde Kenneth Walter, Jr., B.S.E.E., M.B.A. ***** The Ohio State University 1971 Approved by Department of Marketing PLEASE NOTE: Some pages may have indistinct print. Filmed as received. University Microfilms, A Xerox Education Company ACKNOWLEDGMENTS I would like to thank the members of my committee for their guidance and suggestions throughout the project: Dr. B. J. La Londe, chairman, Dr. J, R. Grabner and Dr. J. F. Robeson. Also instrumental in the project was Dr. W. A. Cullman, chairman of the faculty of marketing. The study was funded by the Ohio Department of Liquor Control through the Ohio State University Research Foundation. Acknowledg ment is given to the support provided by the Director of the Depart ment, R. E. Guggenheim, Deputy Director H. R. Cannon, and Assistant Director J. H. Olberding, who coordinated the project. ii VITA November 3, 1942 Bom--Youngstown, Ohio 1964 .......... B.S.E.E., Case Institute of Technology, Cleveland, Ohio 1965 .......... M.B.A., The Ohio State University, Columbus, Ohio 1965-1968 . General Electric Company; Omaha, Nebraska; San Jose, California; Philadelphia, Pennsylvania 1969-1971 . Teaching Associate, Department of Marketing, The Ohio State University, Columbus, Ohio Present .... Assistant Professor, Department of Marketing, University of Nebraska, Lincoln, Nebraska FIELDS OF STUDY Major Field: Marketing Minor Fields: Economics, Finance, Logistics TABLE OF CONTENTS Page ACKNOWLEDGMENTS ................................................ ii VITA .................................................. iil LIST OF TABLES ................................... vi LIST OF ILLUSTRATIONS ............................................ vlii Chapter I. INTRODUCTION.............................................. 1 Background Statement of the Problem Scope Hypotheses Methodology Limitations Possible Contributions of the Study Organization II. EXISTING INVENTORY MANAGEMENT MODELS AND OPINIONS .... 27 Introduction Early Literature Economic Ordering Quantity Emphasis on Minimizing Costs Costs of Inventory Control Stockouts--General Writings Measuring Stockout Costs Models--Basic Literature Literature Pertaining to the Retail Liquor Industry III. METHODOLOGY .............. ?8 Basic Stockout Model Repeated Stockout Model Expected Monetary Value of Stockout Situations Summary of Hypotheses Information Required to Test Hypotheses iv How Information Was Obtained Distribution of Questionnaires Coding and Key-punching Procedures Analysis of Data IV. FINDINGS........... 113 Parameters of the Basic Stockout Model Parameters of the Repeated Stockout Model Tests of Hypotheses Other Findings V. SUMMARY AND CONCLUSIONS ................................... 157 Summary of the Research Conclusions from the Research General Conclusions Implications for Management Implications for Marketing Theory Suggestions for Further Research APPENDIX A. ................................................... 175 B ............................................................. 177 C ............................................................. 180 D ............................................................. 183 E ............................................................. 184 f .......................................................... 189 G ........................................................... 193 H ..... .... ................................................... 197 1 198 J ........................................................... 204 K ............................................................. 214 BIBLIOGRAPHY................................................... 216 v LIST OF TABLES Table Page 1. Basic Stockout Model P a r a m e t e r s ............ .......... 114 2. Repeated Stockout Model Parameters........................ 116 3. Test of Hypothesis 1 ...................................... 11? 4. Test of Hypothesis l a .................................... 119 5. Test of Hypothesis 2 . .......... 120 6 . Test of Hypothesis 3 ...................................... 122 7. Test of Hypothesis 4 ...................................... 124 8 . Test of Hypothesis 5a: A g e .............................. 126 9. Test of Hypothesis 5b: Family I n c o m e .................... 127 10. Test of Hypothesis 5c: Marital S t a t u s .................... 128 11. Test of Hypothesis 5d: S e x .............................. 129 12. Test of Hypothesis 5e: Education ........................ 130 13. Test of Hypothesis 6a: A g e .............................. 132 14. Test of Hypothesis 6b: Family Income .................... 133 15. Test of Hypothesis 6c: Marital Status .................... 134 16. Test of Hypothesis 6d; S e x .............................. I35 17. Test of Hypothesis 6e: Education ........................ I36 18. b-k Coefficients for Discriminant Functions, Single Stockout Model............................................. 138 19. Confusion Matrix: Actual Group Membership vs. Predicted Group Membership .................. 140 vi Table Page 20. EMV Calculations using Group Membership Proportions Predicted by Discriminant M o d e l .............. l4l 21. bpfc Coefficients for Discriminant Functions, Repeated Stockout M o d e l .................... 143 22. Confusion Matrix: Actual Group Membership vs. Predicted Group Membership............................. 14*1- 23. EMV Calculations using Group Membership Proportions Predicted by Discriminant Model for Repeated S t o c k o u t s .............................................. 145 24. Responses to: "Why did you come to this particular state store?" ................................... 148 25. Number of Store Visits in 30 D a y s ...................... 149 26. Amounts Spent on a Single Store V i s i t .................. 150 27. Comparison of Responses to Questions 7 and 9 ............ 151 28. Item Substitution, by Product Group: "How important is it that your first-choice brand name and size be available?" ............................................ 153 29. Summary of Tests of Hypotheses .................. I6*f 30. Price Ranges .............................. 179 31. Size Codes .................... 205 32. Code Numbers and Brand N a m e s ............................. 207 33. Education C o d e s ................................... 212 34. Store C o d e s ............................................. 213 35. Day C o d e s ............................................... 213 vii LIST OF ILLUSTRATIONS Figure Fage 1. Possible Outcomes of a Stock Depletion................... 8 2. Decision Tree for Two Stockouts ............ 11 3. Theoretical and Simplified Exponential Distributions for the Departure of a Cust o m e r ....................... 12 4. A Plausible Form of the Lost Sales/Time Out of Stock Relationship .......... ......... ............ 69 5. Basic Stockout M o d e l ............ 79 6. Model for Repeated Stockouts ..................... 8*t 7. Retail Sales vs. Number of S t o r e s ....................... 95 viii CHAPTER I INTRODUCTION Inventory control has been described as the minimization of the costs of obtaining and carrying inventory, and of not carrying