A Newsvendor Inventory Model subject to Multiplicative Inaccuracies

Abstract

Abstract Most inventory models studied in the scientific literature assume implicitly that the inventory position shown in the information system is equal to the actual physical stock used to satisfy the clients' demands. In the recent years, some empirical studies – mainly developed around the deployment of a new identification technology such as RFID - highlighted that errors and inventory perturbations may occur in the inventory system. Such errors result in a gap between what the information system shows and what is actually available for sales and used to satisfy the demand. The impact of such errors is particularly important in a wholesaling / e-retailing context where customer' demands are remotely satisfied based on the inventory record shown in the information system. The aim of the paper is to develop a framework permitting to increase the inventory performance by tackling the errors that may occur. Such errors are represented by a multiplicative structure, an assumption that bears considerable association with reality. The focus will be steered on the impact of ignoring errors when managing the inventory system by using a classical; i.e. error free, policy.