A Continuous Review Inventory Model with Advance Policy Change and Obsolescence
AbstractIn 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 pre-determined time. Inventory system is controlled according to one-for-one replenishment policy with fixed lead time. Adaptation to the lower demand rate is achieved by changing the control policy in advance and letting the demand take away the excess stocks. We showed 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 found that the advance policy change results in significant cost savings and our model yields near optimal expected total costs.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2009-45.
Date of creation: 31 Mar 2010
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inventory control; obsolescence; spare parts; excess stock; installed base; advance policy changes;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
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