Inventory Systems with Imperfect Asset Information

An inventory stock record is in error when the stock record is not in agreement with the physical stock. Such discrepancies may be introduced due to time lags between flow of information and material, pilferage, incorrect unit of issue, inaccurate physical inventory counts, etc. The primary impact of these errors is that the system fails to order when it should, resulting in “warehouse denials,” i.e., the stock records show a balance sufficient to issue a given material release order, but for which insufficient units of stock can physically be found.

The object of this paper is to select the proper frequency and depth of inventory counts, together with modifications to a given stocking policy, so as to minimize the total cost per unit time, subject to the likelihood of a warehouse denial between inventory counts being below a prescribed level. The goal has been to obtain results easily implementable and leads to formulae comparable to those of the classical economic lot-size models. A numerical example is included to illustrate the procedure.