Robust Optimization of RFID's Investment in Supply Chain with Inaccurate Inventory

Abstract

Traditional supply chain theory often assumes perfect alignment between system inventory and actual inventory. However, inventory information is usually inaccurate due to many reasons in practice. We hereby describe an expended newsvendor model with inventory inaccuracy who wants to remove this negative effect by investing RFID system. By analyzing the best respond to market factors (commodity availability caused by inventory inaccuracy and tag price of RFID), we generate the optimal order quantity of newsvendor (retailer in this paper) and his minimal regret value. Unlike other paper describing uncertain parameters with probability function, we use only upper limit and lower limits to display demand. We adopt robust deviation criterion to minimize the absolute regret and treat it as the determine principle. Finally, we achieve a result that when commodity availability or tag price meets some specific conditions, investing RFID can be rather profitable.Keywords: inventory inaccuracy, robust optimization, RFID technology