Voluntary environmental effort under (s,S) inventory policy

Prior research on inventory control has been wide ranging, yet the environmental implications of an $ ({s,S} ) $ (s,S) inventory policy remain uninvestigated. This paper seeks to bridge the gap by characterising a firm’s voluntary environmental policy in the setup of an $ ({s,S} ) $ (s,S) inventory control policy. We suggest a mixed model structure wherein, due to the presence of fixed production costs, the inventory is determined continuously by sales and impulsively with ordering decisions obeying an optimal stopping process, while the uncertain sales process is controlled by continuous-time environmental goodwill-related decisions. We show that a firm should successively use voluntary environmental efforts to stimulate its sales when there is inventory and to increase backlogging to improve its production efficiency. Given the recurrent pattern of this policy, we conclude that voluntary environmental efforts under an $ ({s,S} ) $ (s,S) inventory control is not compatible with using these efforts as a means to generate ephemeral reputation insurance.