Inventory record inaccuracy due to theft in production-inventory systems

Abstract

Inventory record inaccuracy (IRI) is a major obstacle to realizing operational excellence and lean enterprise principles in the supply chain. This paper proposes an analytical model to study the operational and economic impacts of inventory record inaccuracy stemming from theft-type error in a continuous-review lost sale (s, Q) inventory system. The model builds on a Markovian inventory system and finds optimal safety stock and reorder quantity of product by minimizing the expected costs, which are composed of four components: inventory holding cost, production cost, ordering cost, and lost sales cost. This production-inventory model is analyzed across two scenarios depending on which technology is deployed to optimize replenishment decisions: (1) barcode technology and (2) radio frequency identification (RFID) technology. Our numerical analysis illustrates the solution procedure and the effects of the model parameters on the inventory replenishment decisions and total costs.