Inventory management in the presence of inventory inaccuracies: An economic analysis by discrete-event simulation

Today, inventory management is almost entirely based on information systems. However, inventory records can always be prone to errors, leading to underestimated or overestimated inventory. In this study, the effect generated by inventory record inaccuracies on the economic performance of a warehouse of fast moving consumer goods is analysed. A simulation model is developed under Microsoft Excel™ to reproduce the inbound and outbound flows of product at the warehouse, together with the generation of errors in these flows. Different types of errors, correction mechanisms and reorder policies are taken into account in the analysis. As output, the simulation model returns the total cost of the inventory management as a function of the error level, the reorder policy and the correction mechanism adopted. The results of the study provide useful guidelines for warehouse managers. More specifically, outcomes can support strategic decisions, such as the choice among different correction mechanisms, the opportunity to adopt them (or not) or the opportunity to modify (or not) the operating leverages of the reorder policy to adapt them to the presence of errors in inventory records.