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| Replenishment and Inspection Policies for Systems with Inventory Record Inaccuracy |
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| Abstract: |
For many companies, inventory record inaccuracy
is a major obstacle to achieving operational excellence. The most common
approach in maintaining inventory record accuracy is periodic audits. In this
paper, we consider a single-product, single-stage inventory system in which
inventory records are inaccurate. The manager makes inventory inspection and
replenishment decisions at the beginning of each period. There is a fixed cost
associated with each inspection. If an inspection is performed, inventory
records will be aligned with physical inventory. We develop an effective policy,
the inspection adjusted base-stock (IABS) policy, to minimize total inspection
and inventory costs. Under this policy, a manager makes an inspection if the
recorded inventory level is less than a threshold level and orders up to a
base-stock level that depends on the inspection decision. We show that this
policy is indeed optimal for the single-period problem and near-optimal for the
finite-horizon problem. The numerical study indicates that the loss due to
inventory record inaccuracy can be substantial and effective replenishment and
inspection strategies can recover a significant portion of this loss.
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| Keywords: |
inventory record inaccuracy, inspection policy,
replenishment policy | |
View paper
(http://faculty.fuqua.duke.edu/%7Ekhshang/Working%20Papers/IABS_v2.pdf)
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