I have a hypothetical scenario with which I would appreciate any input. The firm is a regional (PA,MD,DE,NJ) retail distributor of small items ($4 - $200 in value) that sells and delivers goods to commercial customers. A typical order (delivery) is a combination of small items, some disposable, and usually totals between $300 and $1,000. The firm has several problems related to inventory control.

First, inventory amounts in the company's computer system seldom match the actual amounts present in physical inventory. Frequently, sales staff will enter an order for items that appear to be available in sufficient quantity, only to find that when the warehouse "pulls" the order it is short by some or all of a given item. This is discovered by warehouse personnel in the process of verifying an order before it is put on a truck for delivery. When an order is found to be incomplete, it is re-invoiced for the amount of goods able to be delivered, and the missing item gets backordered. Backorders are only ever triggered in this manner.

Additionally, returns and credits are freqently necessary. Some of this can be attributed to an eccentric and fickle customer base. However, it is not uncommon for customers to (a) fail to receive an item that has been invoiced (b) receive an extra item for which they have not been invoiced. In theory, instances of scenario (a) could easily be the result of scenario (b).

When a customer calls to report that they were shorted a particular item for which they were billed, often sales will issue a "jiffy note" to the warehouse for this item to be pulled and sent to the customer on the next week's delivery. Sometimes, sales staff will even go to the warehouse, grab the item and drive it to the customer. When either one occurs, no accounting is kept of issuing the new item. The underlying assumption is that the item must have remained in physical inventory if the customer does not have it, so taking it out will just reconcile physical inventory to the books which already reflect the sale of the item.

The issues of unreliable inventory count and delivery error pose a chicken and egg problem. Are delivery drivers and customers misplacing inventory once it has left the warehouse and are the ad hoc remedies to this causing the inventory crisis? Or, is the lack of reliable inventory data, combined with lax order verifying at the warehouse, causing customers to be deprived of parts of their orders?

Does this firm need a more rigid policy for handling returns and incomplete orders? Are there tricks for fool-proof grouping of orders so that they stay together from the warehouse, to the delivery truck and to the customer?
Can procedures or technologies be put in place to failsafe warehouse operations and alleviate the epidemic of order discrepencies? Is bar coding practical and cost effective for a small operation such as this one?