The impact of inventory inaccuracies on inventory policies: an economic analysis by discret event simulation

Inventory management is almost entirely based on information systems, whose data, however, can be prone to errors. In this study, we analyze the effect generated by inventory record inaccuracy on the economic performance of a fast moving consumer goods warehouse. A simulation model is developed under Microsoft ExcelTM to reproduce a warehouse with inbound and outbound flows and the generation of errors in that system. Different kinds of errors, error correction mechanisms and reorder policies are taken into account in the analysis. As output, the simulation model computes the total cost of the inventory management as a function of the level of error, the reorder policy and the error correction mechanism. Results of the study (whose presentation is limited to some selection examples) provide useful guidelines for warehouse managers. Indeed, outcomes can support some strategic decisions, such as the opportunity (or not) to implement specific error correction mechanisms or the opportunity (or not) to modify the operating leverages of the reorder policy to adapt them to the presence of errors.