The Role of IT in Inventory Management

Besides the basics of formalizing inventory replenishment procedures for thousands of SKUs, the two most significant contributions of IT systems can be improved inventory visibility and better coordination in the supply chain. 

An excellent example of the benefits of improved inventory visibility is Nordstrom, a department store chain in the United States. The company was always very good at managing its inventories (IT systems played an important role here) but had historically separated its online inventories and its store inventories. In September 2009, the company started integrating store inventories onto its website. Customers are now able to access inventory no matter where it is available. If they prefer home delivery, Nordstrom can now use store inventory to serve them. If, 

It is important to recognize that the value of the IT system in each of the cases discussed here is tightly linked to the accuracy of the inventory information. Inaccurate inventory information leads to flawed decisions and could in the worst case create mistrust among supply chain partners attempting to coordinate the decisions and actions. A study by DeHoratius and Raman (2008) found that about 65 percent of the inventory records checked for a retailer were inaccurate. That is, for 65 percent of the records checked, the inventory on hand did not match the inventory showing in the IT system. Without reasonably accurate inventory records, the value provided by an IT system will be limited. 

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