An inventory model for slow moving items subject to obsolescence

Çerag Pinçe and Rommert Dekker

European Journal of Operational Research, 2011, vol. 213, issue 1, 83-95

Abstract: In this paper, we consider a continuous review inventory system of a slow moving item for which the demand rate drops to a lower level at a known future time instance. The inventory system is controlled according to a one-for-one replenishment policy with a fixed lead time. Adapting to lower demand is achieved by changing the control policy in advance and letting the demand take away the excess stocks. We show that the timing of the control policy change primarily determines the tradeoff between backordering penalties and obsolescence costs. We propose an approximate solution for the optimal time to shift to the new control policy minimizing the expected total cost during the transient period. We find that the advance policy change results in significant cost savings and the approximation yields near optimal expected total costs.

Keywords: Inventory; control; Spare; parts; Obsolescence; Advance; policy; change; Excess; stock; Installed; base (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Working Paper: An Inventory Model for Slow Moving Items Subject to Obsolescence (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:213:y:2011:i:1:p:83-95

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