As multichannel or omni-channel retailing develops, the retail industry is recognising that the most efficient form of operation is to service all channels from a single stock pool. This could be physically held in a variety of locations, most commonly warehouses and stores.
In essence this means that every product demand that is received is satisfied on a first come first served basis. To date, a number of retailers have set aside inventory, most commonly for their online channel, to provide a higher service level (measured as availability). The primary reason for this is to ensure that the investment in the online channel is repaid as quickly as possible. This is the equivalent of over staffing and over stocking new stores for their first 6 months of operation, to get them off to a flying start. However, this introduces a series of potentially negative side effects that will be described later and there comes a time when the practice needs to be dropped.
