An analysis of the effect of inventory record inaccuracy in a two-echelon supply chain

Abstract

This paper examines the effect of inventory record inaccuracy within the context of a two-echelon supply chain. The system consists of an external supplier, a distribution centre, and a retail level. Each location operates under an (R, Q) reorder point reorder quantity inventory control policy with backordering permitted. The model introduces count-based discrepancies into the inventory records and measures the effect on system performance at the locations and throughout the supply chain. A set of simulation experiments examines two fundamental methods to mitigate the effect of inaccurate inventory records: carrying extra inventory to protect against the errors and using cycle counting procedures to correct the records over time. In addition, the effect of learning through the use of cycle counting procedures and error reduction methods and the effect of non-compliance (not correcting records) within the system are explored. The results indicate that cycle counting can have significant positive effects within the entire supply chain. In addition, the experiments show that the learning effect has benefits both locally and throughout the supply chain. The results also show that non-compliance to the cycle counting procedure by locations within the chain can have significant detrimental effects on supply chain partners and overall supply chain performance.