Optimal inventory and disposal policies in response to a sale

The authors construct and analyze an EOQ-type model for a buyer who is just informed of a temporary sale. The buyer is assumed to have an option to place special orders and an option to dispose some of his on-hand inventory. The key feature differentiating the model from the extant literature on inventory models is that the optimal inventory and disposal policies are fully integrated and simultaneously determined. The optimal policies are fully integrated and simultaneously determined. The optimal policies are derived in closed form from comparing cost savings of various cases of strategies, and several interesting managerial insights are obtained by analyzing the closed-form optimal policies.