Optimal Investment Levels to Eliminate Inventory Inaccuracy in a Two-Level Supply Chain

Inventory inaccuracy is a major problem in supply chains. RFID technology is anticipated to alleviate this problem at the expense of the required hardware and software investment. For a supply chain consisting of single supplier and multiple warehouses, we investigate the optimal levels of investment in order to decrease inventory inaccuracy. The analysis yields insights on the relative benefits of RFID implementation depending on factors such as demand and inaccuracy variability, financial parameters and supply chain structure.