One of the implicit assumptions considered in the majority of investigations performed in the area of inventory management is that the physical flow that passes through an inventory system as well as the associated information flow are free from defects. In other words, for a given type of product, the quantity received matches exactly the quantity ordered or no errors occur during the data capture process such that the level of the available inventory shown by the information system corresponds exactly to the physical quantity really available. However, various factors can create a difference between the expected and the effective physical and information flows. The performance of such inventory systems whose flows are disturbed by defects can be improved by using advanced product identification and data capture technologies such as the RFID (Radio Frequency Identification) technology. This paper deals with the consideration of errors in inventory management related decisions and analyses whether RFID is cost effective in tackling this issue. We first give an overview of potential errors that may occur within an inventory system. Then, we propose a framework to model the impact of errors and to evaluate the performance improvement enabled by such identification and data capture technologies.
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