3.1. Case Description
An online shopping platform with over 1 million online daily visitors is considered as the case study. The operational network of the case company is based on three warehouses, allowing shoppers to purchase the items that either belong to a seller or are owned by the e-commerce company. With a monthly turnover of over 56 million USD in 2019, the company has over 700,000 items, including food, furniture, clothing, and consumer electronics available for sale, and is planning to expand the products’ width and depth gradually. Therefore, dealing with excess inventory is a major operational decision at the case company. Data collection began with confirming the identified decision factors in the literature review section with the managers; except for SI (social impact), which is perceived as poorly relevant considering the products they provide and the market environment wherein the company operates, therefore, the rest were chosen to proceed to the decision analysis phase. Next, a questionnaire was developed based on these nine factors to three category managers of the company. Data processing using the Fuzzy DEMATEL method is presented next.
3.3. Results Analysis
Given the direct relations in Table 2
, Table 3
and Table 4
, which are stated in linguistic terms, the three-step procedure presented in Section 3.2
is considered to process data and obtain the TRM. To identify the total relations with a significant magnitude, a threshold of average plus one standard deviation of the TRM values is considered, as suggested by [20
]. It is observed that Environmental and Health Impact imposes the most significant influence on the financial factors, i.e., Profit Margin and the Destruction Cost. The Strategic Partnerships appeared to impose a significant impact on the Profit Margin, particularly in the long term. Other significant interrelations are differentiated in bold font in Table 5
Expectedly, Profit Margin has been identified as a decision factor with the highest influence. As shown in Table 6
, Obsolete Product, Defective and Returned Items, and Product Substitution are the other factors that receive more influence than dispatching influence on the other factors in the decision network. The results are supportive of Profit Margin as the most prominent factor, and the Environmental and Health Impact as the factor that exerts the highest net-influence in the decision-making process, both directly and indirectly. Given that the costs of inventory destruction are mostly caused by the regulatory measures, new policies and restrictive measures applied by the local authorities help revise the unsustainable approaches.
The following academic and practical implications can be extrapolated from the study. The responsiveness of the e-commerce service provider plays a significant role to establish strategic fit in the supply chain. In order for a company to adjust its supply chain capabilities in accordance with the competitive strategy, there must be harmony between various functions [48
]. The notable value of inventory destruction as an operational strategic tool is that it enables the distributors to adhere to a responsive operational strategy with making space for fast-moving items and the products targeting a market with high implied demand uncertainty. Inventory destruction decisions in response to urgent reallocation needs may result in myopic decisions, hence, a forward-looking proactive destruction decision may be necessary to make buffer space for unpredictable situations, like a surge in the demand of a certain product, for example, masks and personal production equipment and ventilators in the recent pandemic. For this purpose, time-to-implement is a critical aspect of inventory destruction such that it is not too early to destruct the inventory of a certain product and miss possible chances for alternative approaches like markdowns and gifting, and not too late that keeping the inventory results in further losses which, in turn, may result in a reactive and hasty myopic decision.
The results suggested that non-financial perspectives are crucial for making well-informed inventory destruction decisions. Considering the sequential effect [20
] of these factors on the financial aspect is as important as considering the temporal state when evaluating a destruction candidate in terms of the studied decision factors. That is, the non-financial factors drive changes in the future state of the financial performance of the product in the long term; considering such aspects may help avoid reactive destruction decisions. For example, a product with a current average financial performance is susceptible to performance degradation if the factors with high impact on the profit margin, i.e., brand reputation, strategic partnership, environmental and health impacts, and the defects and returns rate are perceived as negative in the current evaluation of the product.
Overall, markdown sale of the excess inventory is the most economically viable alternative to inventory destruction. Alternatively, the company may benefit from gifting the products in marketing campaigns or donations non-financially. In circumstances where the above alternatives are not applicable, sending the excess inventory to the authorized recyclers and processors may be the best alternative to inventory destruction to reduce the adverse impacts of non-standard destruction approaches. Unsustainable destruction approaches such as open burning, strong acid corrosion, and discarding useless substances cause serious environmental issues [49
] and health risks [51
]. In addition to the above sustainability issues, there may be a risk to outsource the inventory destruction process to unknown entities where the items may end up being sold in the gray market or used in inappropriate ways. These issues may result in long-term adverse consequences for the brand, hence, need to be dealt with carefully.
In addition to the practical implications, there is room for refining the available inventory models based on the results of this study. The existing research largely focuses on analytical tools for markdown decisions, for example, using game theory or pricing/revenue management models. These studies should account for the costs imposed by possible destruction decisions if the products are not sold out under markdowns. That is, the alternatives to markdown decisions should be indirectly involved to make well-informed markdown decisions as the most favorable alternative for dealing with excess inventory. Such models can be particularly useful for products with a short life cycle, like fashion products where the time factor is of certain cachet.
Correlation between products is another aspect that needs to be considered in the existing analytical decision aid tools, particularly the models for periodic review inventory systems. For example, the destruction of a product that does not have a substitute, particularly if the producer’s targeted segment are the customers sensitive to product availability and response time, may result in unwanted situations in the long term, i.e., in terms of the competitive forces [42
]. Besides, the current models can be revised to address the situations where the target products for inventory destruction decisions complement each other and the spare parts of discontinued products. The next implication comes from selecting the optimal liquidation strategy and implementation time. Taking recoverable items as an example, the features like high cost and low demand [53
] as well as deterioration with time make destructing them an option. However, with the circular economy encouraging R
], burying or burning the products, which is often the case for fashion houses, are the least appealing alternatives for dealing with excess inventory through destructing them. Instead, R-imperatives, like recycling and reuse, should take place. Some of the decision factors introduced in this study can be beneficial in defining a clear boundary between burying/burning and remanufacturing, refurbishing, or repurposing decisions. Besides, the existing analytical tools, more particularly the models based on Multi-Echelon Technique for Recoverable Item Control, like [55
], can be revised by including the non-financial aspects introduced in this study to account for their sequential effect on the financial outcome. Given that the introduced factors are both qualitative and quantitative, the presence of uncertainty, and significant interaction between the factors, fuzzy-based approaches are useful complementary tools to improve the utility functions of the existing inventory models. Alternatively, some of the soft factors introduced in this study can be used in the trade-off for selecting the best alternative from the Pareto-frontier of optimal solutions within posterior and interactive preference articulations.
The final implication comes from considering the push/pull view of the supply chain processes and exploring the issue of inventory ownership using game theory models while considering some of the aspects introduced in this study. In so doing, one can study the best push/pull boundary bearing in mind the possibility of facing the excess inventory problem.