Optimal control of an inventory with simultaneous obsolescence

Optimal control of an inventory with simultaneous obsolescence

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Article ID: iaor200947188
Country: United States
Volume: 37
Issue: 5
Start Page Number: 445
End Page Number: 454
Publication Date: Sep 2007
Journal: Interfaces
Authors: ,
Keywords: obsolescence
Abstract:

We consider the problem of determining the optimal ordering and reordering policy for an inventory in which the entire stock will simultaneously become obsolete at some (typically random) future time. Many manufacturing, publishing, distribution, and high–tech businesses face the challenge of maintaining inventories that do not age in the conventional sense; instead, they suddenly become obsolete and lose most or all of their value. These circumstances render traditional inventory analysis unsuitable for balancing reordering costs with the costs of overstocking. We study a continuous–review and stochastic–demand obsolescence inventory model, and calculate its optimal control policy. We gear our solution technique to problems that involve large inventories and small holding costs.

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