Abstract
Motivated by empirical evidence, this article focuses on the behaviour of a store inventory exposed to inventory record inaccuracy. The inventory, controlled by an infinite horizon, single-stage, single-product periodic-review policy, is subject to shrinkage errors that cause a difference between the physical and information system inventory levels. We model a set of scenarios depending on the technology available to track shrinkage in the store. In scenarios where a technology such as Radio Frequency IDentification (RFID) is not used, inventory is controlled by estimating the expected shrinkage rate. We assume that an inspection process is performed at a regular frequency of N selling periods. We analyse two situations that permit management of the joint ordering and inspection policy based on the information the inventory manager has on shrinkage errors. A comparison between these two situations permits us to analyse the impact of shrinkage errors and the value of taking into account the inventory inaccuracy issue when optimising the inventory and inspection policies. The deployment of the RFID technology produces two benefits: total visibility of the shrinkage rate and the elimination of shrinkage errors. A comparison of the scenarios enables us to evaluate the economic impact of inventory record inaccuracies, which can be significant, particularly in systems with a poor estimation of the error parameter as well as with a high inspection cost.