Effects of ticket-switching on inventory management: Actual vs. information system-based data

• We study the effects of ticket-switching on optimal order quantity and resulting profit.
• We find that ticket-switching increases (decreases) the optimal order quantity of the expensive (cheap) items.
• Profit on expensive (cheap) items is higher (lower) in the presence of ticket-switching behavior than otherwise.

Inventory inaccuracies in retail stores result from a combination of controllable and uncontrollable factors such as theft, damage, spoilage, misplacement, process errors, ticket-switching, among others. While most shrinkage types affect only one (type of) item, ticket-switching simultaneously affects the inventory of multiple items. Ticket-switching is the process of switching the identifier or ticket of an expensive item with that from a (relatively) cheap item with the explicit intent of purchasing the expensive item by paying the cheap item's price. Ticket-switching incidents distort inventory records in store information systems. Inventory management decisions based on such data from store information systems are therefore sub-optimal. We study the effects of ticket-switching on optimal order quantity of the involved items and the resulting profit. Under uniformly distributed demand and yield conditions, we find that ticket-switching increases (decreases) the optimal order quantity of the expensive (cheap) items. Surprisingly, results from our analysis indicate that profit on expensive (cheap) items is higher (lower) in the presence of ticket-switching behavior than otherwise.