ABSTRACT In today’s market, when we look at how businesses are structured in order to deal with competition, we see that supply chain management is the key factor in companies success. When the existing methods fall incompetent in the analysis and management of supply chains,simulations can provide great advantages.This article discusses the reasons why simulations should be used as an analysis method insupply chain management and examines the important factors in system modeling and in determining the data requirements for the simulation method.

Introduction The phenomenon of inventory inaccuracy is well-known. Raman et al. (2001) found in a case study that for more than 65% of stock keeping units (SKU) in retail stores, information on inventory in the inventory management system was inaccurate (i.e. the information system inventory differed from physical inventory). The difference was on average 35% of the target inventory. In a second case study, the authors found that a median of 3.4% of SKUs were not found on the sales floor although inventory was available in the store. In the first case, inventory inaccuracy reduced profits by 10%, in the second case, misplaced items reduced profits by 25%

Reasons why information system inventory records are inaccurate include external and internal theft (Bullard and Resnik, 1983), unsaleables (e.g. damaged, out-of-date, discontinued, promotional, or seasonal items that cannot be sold any longer), incorrect incoming and outgoing deliveries (Raman et al., 2001; ECR Europe, 2000), as well as misplaced items (Raman et al., 2001).

Related Work To our knowledge there is a limited amount of research that has been carried out to study the effect of inventory inaccuracy on supply chain performance. Ganeshan et al. (2001) simulate the impact of forecasting error (among other parameters) on supply chain performance, but do not consider inaccurate inventory data. We are only aware of two papers that study material requirements planning (MRP) systems, but have not seen any research that addresses this issue for a multiechelon supply chain.

Material Requirements Planning Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well.production planningschedulinginventorymanagemanufacturingsoftware An MRP system is intended to simultaneously meet three objectives:  Ensure materials are available for production and products are available for delivery to customers.productionproductsdelivery  Maintain the lowest possible material and product levels in store  Plan manufacturing activities, delivery schedules and purchasing activitiespurchasing

Functions Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:  If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.  If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.  Beginning production of an order at the wrong time can cause customer deadlines to be missed.

Data  The end item (or items) being created. This is sometimes called Independent Demand, or Level "0" on BOM (Bill of materials).Bill of materials  How much is required at a time.  When the quantities are required to meet demand.  Shelf life of stored materials. Shelf life  Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers.  Bills of materials. Details of the materials, components and sub- assemblies required to make each product.  Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routing, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.Routing

Outputs There are two outputs and a variety of messages/reports:  Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production Schedule (MPS).Master Production Schedule  Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules.Purchase orders Messages and Reports:  Purchase orders. An order to a supplier to provide materials. Purchase orders  Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing orders.

Means to Improve Inventory Accuracy When looking at technologies to improve inventory accuracy, one might consider automatic identification technology such as radio frequency identification (RFID). There are currently various efforts to promote the use of RFID tags in retailing. RFID technology is advocated by several researchers as well as consultants and systems integrators in order to realize pallet, case or item level tracking in retail supply chains (e.g. Alexander et al., 2002; Kambil and Brooks, 2002; Karkk. ainen and Holmstr. om, ; Wolff, 2001). Benefits of RFID technology being discussed include reductions in stolen and unsaleable items, labour cost savings, and a reduction in out-ofstock items (e.g. Alexander et al., 2002)

RFID technology has some advantages over conventional barcode technology (e.g. non-line-ofsight and automatic identification), but also some drawbacks (e.g. tag cost, lack of standards) (ECR Europe, 2000; Sarma et al., 2000). Eliminating inventory inaccuracy relies on frequent checks of physical inventory against information system inventory. To detect stolen or unsaleable items in a store, for example, individual items on a shelf need to be identified which cannot be achieved witha barcode-based solution. When RFID technology is applied on individual items and is solely to be used to achieve inventory accuracy, it seems most appropriate for high value items, due to the cost of tags. It might be used for a wider range of products if improvements in process quality, a reduction in theft or in unsaleable items can be achieved.

Summary and Conclusions Our researchsuggests that it can be useful for companies that face high levels of inventory inaccuracy to examine procedures or technologies to eliminate (or at least reduce) inventory inaccuracy. To give some guidance, the results of our model indicate that an elimination of inventory inaccuracy can reduce supply chain cost and decrease the out-of-stock level when inventory inaccuracy is initially as low as 2%.

There are different approaches that can help to improve inventory accuracy. Some researchers advocate the use of benchmarking, awareness building, and process improvements. Additionally, automatic identification technologies such as RFID offer the potential to increase accuracy. Recent developments indicate that RFID is going to be adopted in a number of retail supply chains within the next couple of years.