Analysis of simple inventory control systems with execution errors: Economic impact under correction opportunities

Abstract

Motivated by recent empirical evidence, we study the economic impact of inventory record inaccuracies that arise due to execution errors. We model a set of probable events regarding the erroneous registering of sales at each demand arrival. We define correction opportunities that can be used to (at least partially) correct inventory records. We analyze a simple inventory control model with execution errors and correction opportunities, and demonstrate that decisions that consider the existence of recording errors and the mechanisms with which they are corrected can be quite complicated and exhibit complex tradeoffs. To evaluate the economic impact of inventory record inaccuracies, we use a simulation model of a (Q,r) inventory control system and evaluate suboptimalities in cost and customer service that arise as a result of untimely triggering of orders due to inventory record inaccuracies. We show that the economic impact of inventory record inaccuracies can be significant, particularly in systems with small order sizes and low reorder levels.