Methodical analysis of inventory discrepancy under conditions of uncertainty in supply chain management

This study presents two compensations methods for inventory discrepancy caused by demand, supply and lead time uncertainty as well as inventory related errors. The first method increases the resistance of supply chain by incrementing safety stock levels while the second method controls and corrects inventory discrepancy based on estimated errors. System-level errors are categorised and modelled under the best and the worst possible conditions to characterise and investigate the behaviour of discrepancy between on-hand and recorded inventory in a supply chain. Numerical analyses are performed to observe inventory and discrepancy behaviour to quantify the benefits of the methods. The results indicate that inventory errors can be characterised as an extra source of demand in supply chain. Incrementing the safety stocks based on inventory records can decrease stock-outs and lost sales but increase the level of on-hand inventory. Controlling and correcting inventory discrepancies, however, keeps low inventory.