For many companies that operate inventory-carrying
facilities, providing high product availability to customers at minimal
operation costs is one of the key factors that determine the success of their
businesses. In industries where the competition is fierce and profit margins are
thin, companies have tended to automate the inventory management processes to
better meet customer demand and reduce operational costs. For example, many
retailers use an automatic replenishment system which tracks the number of
products in the store and places an order with the
supplier
in a timely fashion with minimal human intervention.
By doing so, the companies depend on the accuracy of the
computerized information system for critical decision-making. Information
regarding what products are where and in what quantity must be provided
accurately to effectively coordinate the movement of the goods. However, if the
information provided by the computer system is incorrect, the ability to provide
the product to the consumers at the minimal operation cost is compromised. For
example, if the computer's record of stock quantity in the facility does not
agree with the actual physical stock, orders may not be placed with the supplier
in time, or the facility could be carrying unnecessary inventory.
This research investigates problems related to the
information inaccuracy in inventory systems: specifically what the inaccuracy
is, what the causes are, and what impact it has on the performance of the
inventory system. In addition to quantifying the costs of inaccuracy, this
research also addresses various ways the inaccuracy can be mitigated to improve
the system performance.
2. Inventory inaccuracy
The issues discussed here became apparent due to the work
of the Auto-ID Center at MIT. The Auto-ID Center, founded in 1999, is sponsored
by over 100 global companies, many of whom are leaders in their industries. Its
aim is to create an automatic product identification system that can potentially
replace bar-code technology. A Radio Frequency Identification (RFID) tag, which
is a microchip with an antenna, would be placed on physical objects in trade: a
soda bottle, a pair of jeans, a car engine, etc. By placing the RFID readers
that sense the presence of tagged objects throughout key locations in the supply
chain, the objects can be tracked from the point of manufacture to and beyond
the point of consumption. The Auto-ID Center is engaged in designing and
deploying a global infrastructure that will make it possible for computers to
provide accurate, real-time identification and location of objects.
In the midst of working with a number of select sponsors
to understand the potential applications of the Auto-ID Center technology, we
learned something that is contrary to a popular belief. That is, retailers are
not very good at knowing how many products they have in the stores.
