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Inventory record inaccuracy deteriorates supply chain performance because it leads to ineffective replenishment decisions. Conducting cycle counts (i.e., periodic inventory auditing) is a common approach to correcting inventory records. It is not clear, however, how inaccuracy at different locations affects supply chain performance and how an effective cycle-count program for a multi-stage supply chain should be designed. This paper aims to answer these questions by considering a serial supply chain that has inventory record inaccuracy and operates under local base-stock policies. A random error, representing a stock loss, such as shrinkage or invisible demand, reduces the physical inventory at each location in each period. The errors are cumulative and are not observed until a location performs a cycle count.
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