The Value of Inventory Accuracy in Supply Chain Management

Yale T. Herer, Technion

Abstract:

The fact that information has value in the management of supply chains is well accepted. Our work focuses on the value of the quality of information. In particular we are concerned with discrepancies known as inventory errors, which are the result of one of the following three events: shrinkage, misplacement and wrong-scanning. The outcome of these events is discrepancies between IT inventory (inventory as it appears in the computerized system) and available inventory for sale. The literature describes both the extent to which these discrepancies are commonplace and the degree to which they increase lost sales and lower profits. Nevertheless, these discrepancies and their associated negative effects can be eliminated if more accurate information is available. We explore four different scenarios that operationally take these errors into consideration in four different ways: the no information scenario, the static informed scenario, the informed scenario and the full information scenario. The objective of our work is to explore and quantify the value of more accurate information in all three of these scenarios compared to the no information scenario. To this end, we formulate and solve an analytical model for each scenario whose objective is to minimize the average expected cost per period. Our computational study shows that more accurate information influences the optimal policy and can be exploited to significantly reduce costs. Moreover, we find that certain problem parameters do not affect the value of information whereas other parameters have a tremendous affect.

Joint work with A. Avarhami, A. Tzimerman, and A. Stub.

ההרצאה תתקיים ביום ג' 29.05.12, בשעה 14:00 בחדר 206, בנין וולפסון הנדסה, הפקולטה להנדסה, אוניברסיטת תל-אביב.