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Inventory inaccuracy in retail stores due to theft: An analysis of the benefits of RFID

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  • Rekik, Yacine
  • Sahin, Evren
  • Dallery, Yves

Abstract

We consider a finite-horizon, single-stage, single-product periodic review store inventory in which inventory records are inaccurate. We assume that inventory inaccuracies are introduced by theft type errors that arise within the store. We propose a comparison between three approaches based on which the inventory system can be managed in presence of theft errors: in the first approach, we assume that the inventory manager ignores errors occurring in the store. In the second approach, we focus on the benefit that can be achieved through a better knowledge of errors, i.e. by taking into account this information in designing the inventory policy. In the third approach, we focus on the contribution of a perfect RFID technology that enables to improve the system. We analyze the problem of having theft in store by optimizing the holding cost under a service level constraint. The comparison between the three approaches permits us to analyze the impact of theft errors and the value of the RFID technology on the inventory system. We also propose an analytical critical tag cost which makes the deployment of the RFID technology cost effective.

Suggested Citation

  • Rekik, Yacine & Sahin, Evren & Dallery, Yves, 2009. "Inventory inaccuracy in retail stores due to theft: An analysis of the benefits of RFID," International Journal of Production Economics, Elsevier, vol. 118(1), pages 189-198, March.
  • Handle: RePEc:eee:proeco:v:118:y:2009:i:1:p:189-198
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    References listed on IDEAS

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    1. Donald L. Iglehart & Richard C. Morey, 1972. "Inventory Systems with Imperfect Asset Information," Management Science, INFORMS, vol. 18(8), pages 388-394, April.
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    Cited by:

    1. Fan, Tijun & Tao, Feng & Deng, Sheng & Li, Shuxia, 2015. "Impact of RFID technology on supply chain decisions with inventory inaccuracies," International Journal of Production Economics, Elsevier, vol. 159(C), pages 117-125.
    2. Li, Ming & Wang, Zheng & Chan, Felix T.S., 2016. "A robust inventory routing policy under inventory inaccuracy and replenishment lead-time," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 91(C), pages 290-305.
    3. 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.
    4. Zhou, Wei & Piramuthu, Selwyn, 2012. "Manufacturing with item-level RFID information: From macro to micro quality control," International Journal of Production Economics, Elsevier, vol. 135(2), pages 929-938.
    5. 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.
    6. 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.
    7. Reyes, Pedro M. & Li, Suhong & Visich, John K., 2016. "Determinants of RFID adoption stage and perceived benefits," European Journal of Operational Research, Elsevier, vol. 254(3), pages 801-812.
    8. Bo Yan & Xiaoxu Chen & Qin Yuan & Xiaotai Zhou, 2020. "Sustainability in fresh agricultural product supply chain based on radio frequency identification under an emergency," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 28(4), pages 1343-1361, December.
    9. Biswal, Arun Kumar & Jenamani, Mamata & Kumar, Sri Krishna, 2020. "The impact of RFID adoption on donor subsidy through for-profit and not-for-profit newsvendor: Implications for Indian Public Distribution system," Socio-Economic Planning Sciences, Elsevier, vol. 69(C).
    10. Mou, Shandong & Robb, David J. & DeHoratius, Nicole, 2018. "Retail store operations: Literature review and research directions," European Journal of Operational Research, Elsevier, vol. 265(2), pages 399-422.
    11. Wang, Fuqiang & Fang, Xiaoping & Chen, Xiaohong & Li, Xihua, 2016. "Impact of inventory inaccuracies on products with inventory-dependent demand," International Journal of Production Economics, Elsevier, vol. 177(C), pages 118-130.
    12. Thiesse, Frédéric & Buckel, Thomas, 2015. "A comparison of RFID-based shelf replenishment policies in retail stores under suboptimal read rates," International Journal of Production Economics, Elsevier, vol. 159(C), pages 126-136.
    13. Gel, Esma S. & Erkip, Nesim & Thulaseedas, Anoop, 2010. "Analysis of simple inventory control systems with execution errors: Economic impact under correction opportunities," International Journal of Production Economics, Elsevier, vol. 125(1), pages 153-166, May.
    14. Fan, Ti-Jun & Chang, Xiang-Yun & Gu, Chun-Hua & Yi, Jian-Jun & Deng, Sheng, 2014. "Benefits of RFID technology for reducing inventory shrinkage," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 659-665.
    15. Yang, Huixiao & Chen, Wenbo, 2020. "Game modes and investment cost locations in radio-frequency identification (RFID) adoption," European Journal of Operational Research, Elsevier, vol. 286(3), pages 883-896.
    16. 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.
    17. Shin, Seungjae & Eksioglu, Burak, 2015. "An empirical study of RFID productivity in the U.S. retail supply chain," International Journal of Production Economics, Elsevier, vol. 163(C), pages 89-96.
    18. Anna M. Turri & Ronn J. Smith & Steven W. Kopp, 2017. "Privacy and RFID Technology: A Review of Regulatory Efforts," Journal of Consumer Affairs, Wiley Blackwell, vol. 51(2), pages 329-354, July.
    19. Feng Tao & Tijun Fan & Kin Keung Lai & Lin Li, 2017. "Impact of RFID technology on inventory control policy," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(2), pages 207-220, February.
    20. Biswal, Arun Kumar & Jenamani, Mamata & Kumar, Sri Krishna, 2018. "Warehouse efficiency improvement using RFID in a humanitarian supply chain: Implications for Indian food security system," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 109(C), pages 205-224.
    21. 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.
    22. 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.
    23. 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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