Abstract
Spoilage, expiration, damage due to employee/customer handling, employee theft, and customer shoplifting usually are not reflected in inventory records. As a result, records often report phantom inventory, that is, units of good not available for sale. We derive an optimal polynomial‐time algorithm for the auditing and replenishment problem with phantom inventory, under the assumption that inventory is known immediately after replenishment. Moreover, we numerically show that a service‐level threshold policy performs comparably to the optimal.
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