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Investment in improved inventory accuracy in a decentralized supply chain

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  • Uçkun, Canan
  • Karaesmen, Fikri
  • Savas, Selçuk

Abstract

It is known that inaccurate inventory records can lead to profit losses in a supply chain. Inventory records may not be correct due to various reasons such as transaction errors, misplacement, shrinkage, etc. In order to eliminate inventory inaccuracy, companies may invest in new information technologies such as radio frequency identification (RFID). In this paper, we consider a supply chain consisting of a retailer (distributor) and a supplier. We assume a single-period newsvendor-type setting where the retailer purchases the items from the supplier and distributes them to the regional warehouses. The paper focuses on the problem of finding the optimal investment levels that maximize profit by decreasing inventory inaccuracy. The optimal level of investment is examined both for the centralized and the decentralized systems under two scenarios: inventory sharing between the warehouses is allowed and not allowed. The coordination problem is also considered for both scenarios. Finally, several extensions of the model are considered: asymmetric warehouse parameters, demand and inventory inaccuracy correlation and imperfect RFID implementation.

Suggested Citation

  • Uçkun, Canan & Karaesmen, Fikri & Savas, Selçuk, 2008. "Investment in improved inventory accuracy in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 113(2), pages 546-566, June.
    • Handle: RePEc:eee:proeco:v:113:y:2008:i:2:p:546-566
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    Cited by:

    1. Thiel, Daniel & Hovelaque, Vincent & Vo, Thi Le Hoa, 2009. "Impact of inventory inaccuracy on service-level quality: A simulation analysis," Working Papers 210394, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    2. Ahmed Musa & Al-Amin Abba Dabo, 2016. "A Review of RFID in Supply Chain Management: 2000–2015," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 17(2), pages 189-228, June.
    3. Mehran Ullah & Biswajit Sarkar & Iqra Asghar, 2019. "Effects of Preservation Technology Investment on Waste Generation in a Two-Echelon Supply Chain Model," Mathematics, MDPI, vol. 7(2), pages 1-20, February.
    4. Hsu, P.H. & Wee, H.M. & Teng, H.M., 2010. "Preservation technology investment for deteriorating inventory," International Journal of Production Economics, Elsevier, vol. 124(2), pages 388-394, April.
    5. Thiel, Daniel & Hovelaque, Vincent & Thi Le Hoa, Vo, 2010. "Impact of inventory inaccuracy on service-level quality in (Q,R) continuous-review lost-sales inventory models," International Journal of Production Economics, Elsevier, vol. 123(2), pages 301-311, February.
    6. Reyes, Pedro M. & Li, Suhong & Visich, John K., 2012. "Accessing antecedents and outcomes of RFID implementation in health care," International Journal of Production Economics, Elsevier, vol. 136(1), pages 137-150.
    7. Agrawal, Paras M. & Sharda, Ramesh, 2012. "Impact of frequency of alignment of physical and information system inventories on out of stocks: A simulation study," International Journal of Production Economics, Elsevier, vol. 136(1), pages 45-55.
    8. Jorge E. Hernández & Josefa Mula & Raúl Poler & Andrew C. Lyons, 2014. "Collaborative Planning in Multi-tier Supply Chains Supported by a Negotiation-Based Mechanism and Multi-agent System," Group Decision and Negotiation, Springer, vol. 23(2), pages 235-269, March.
    9. Lim, Ming K. & Bahr, Witold & Leung, Stephen C.H., 2013. "RFID in the warehouse: A literature analysis (1995–2010) of its applications, benefits, challenges and future trends," International Journal of Production Economics, Elsevier, vol. 145(1), pages 409-430.
    10. Cannella, Salvatore & Framinan, Jose M. & Bruccoleri, Manfredi & Barbosa-Póvoa, Ana Paula & Relvas, Susana, 2015. "The effect of Inventory Record Inaccuracy in Information Exchange Supply Chains," European Journal of Operational Research, Elsevier, vol. 243(1), pages 120-129.
    11. Sarac, Aysegul & Absi, Nabil & Dauzère-Pérès, Stéphane, 2010. "A literature review on the impact of RFID technologies on supply chain management," International Journal of Production Economics, Elsevier, vol. 128(1), pages 77-95, November.
    12. Dai, Hongyan & Ge, Ling & Zhou, Weihua, 2015. "A design method for supply chain traceability systems with aligned interests," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 14-24.
    13. Sari, Kazim, 2010. "Exploring the impacts of radio frequency identification (RFID) technology on supply chain performance," European Journal of Operational Research, Elsevier, vol. 207(1), pages 174-183, November.
    14. Ferrer, Geraldo & Heath, Susan K. & Dew, Nicholas, 2011. "An RFID application in large job shop remanufacturing operations," International Journal of Production Economics, Elsevier, vol. 133(2), pages 612-621, October.
    15. Xu, Jinpeng & Jiang, Wei & Feng, Gengzhong & Tian, Jun, 2012. "Comparing improvement strategies for inventory inaccuracy in a two-echelon supply chain," European Journal of Operational Research, Elsevier, vol. 221(1), pages 213-221.
    16. Zhang, Allan N. & Goh, Mark & Meng, Fanwen, 2011. "Conceptual modelling for supply chain inventory visibility," International Journal of Production Economics, Elsevier, vol. 133(2), pages 578-585, October.
    17. Cannella, Salvatore & Dominguez, Roberto & Framinan, Jose M., 2017. "Inventory record inaccuracy – The impact of structural complexity and lead time variability," Omega, Elsevier, vol. 68(C), pages 123-138.

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