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An inventory model for slow moving items subject to obsolescence

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  • Pinçe, Çerag
  • Dekker, Rommert

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.

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  • Pinçe, Çerag & Dekker, Rommert, 2011. "An inventory model for slow moving items subject to obsolescence," European Journal of Operational Research, Elsevier, vol. 213(1), pages 83-95, August.
    • Handle: RePEc:eee:ejores:v:213:y:2011:i:1:p:83-95
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    Cited by:

    1. Teunter, Ruud H. & Syntetos, Aris A. & Zied Babai, M., 2011. "Intermittent demand: Linking forecasting to inventory obsolescence," European Journal of Operational Research, Elsevier, vol. 214(3), pages 606-615, November.
    2. Ozyoruk, Emin & Erkip, Nesim Kohen & Ararat, Çağın, 2022. "End-of-life inventory management problem: Results and insights," International Journal of Production Economics, Elsevier, vol. 243(C).
    3. Usman Ali & Bashir Salah & Khawar Naeem & Abdul Salam Khan & Razaullah Khan & Catalin Iulian Pruncu & Muhammad Abas & Saadat Khan, 2020. "Improved MRO Inventory Management System in Oil and Gas Company: Increased Service Level and Reduced Average Inventory Investment," Sustainability, MDPI, vol. 12(19), pages 1-19, September.
    4. Dekker, Rommert & Pinçe, Çerağ & Zuidwijk, Rob & Jalil, Muhammad Naiman, 2013. "On the use of installed base information for spare parts logistics: A review of ideas and industry practice," International Journal of Production Economics, Elsevier, vol. 143(2), pages 536-545.
    5. Christiane B. Haubitz & Ulrich W. Thonemann, 2021. "How to Change a Running System—Controlling the Transition to Optimized Spare Parts Inventory Policies," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1386-1405, May.
    6. Kim, T.Y. & Dekker, R. & Heij, C., 2016. "Spare part demand forecasting for consumer goods using installed base information," Econometric Institute Research Papers EI2016-11, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    7. Topan, E. & Eruguz, A.S. & Ma, W. & van der Heijden, M.C. & Dekker, R., 2020. "A review of operational spare parts service logistics in service control towers," European Journal of Operational Research, Elsevier, vol. 282(2), pages 401-414.
    8. Mellal, Mohamed Arezki, 2020. "Obsolescence – A review of the literature," Technology in Society, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Inventory control Spare parts Obsolescence Advance policy change Excess stock Installed base;

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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