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Optimal Control of an Inventory with Simultaneous Obsolescence

Author

Listed:
  • Markus Emsermann

    (Jeppesen, Englewood, Colorado 80112)

  • Burton Simon

    (Department of Mathematics, University of Colorado at Denver, Denver, Colorado 80217)

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.

Suggested Citation

  • Markus Emsermann & Burton Simon, 2007. "Optimal Control of an Inventory with Simultaneous Obsolescence," Interfaces, INFORMS, vol. 37(5), pages 445-454, October.
    • Handle: RePEc:inm:orinte:v:37:y:2007:i:5:p:445-454
    DOI: 10.1287/inte.1070.0304
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    References listed on IDEAS

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    1. Song, Yuyue & Lau, Hoong Chuin, 2004. "A periodic-review inventory model with application to the continuous-review obsolescence problem," European Journal of Operational Research, Elsevier, vol. 159(1), pages 110-120, November.
    2. George W. Brown & John Y. Lu & Robert J. Wolfson, 1964. "Dynamic Modeling of Inventories Subject to Obsolescence," Management Science, INFORMS, vol. 11(1), pages 51-63, September.
    3. Israel David & Avraham Mehrez, 1995. "An Inventory Model with Exogenous Failures," Operations Research, INFORMS, vol. 43(5), pages 902-903, October.
    4. Israel David & Eitan Greenshtein & Avraham Mehrez, 1997. "A dynamic‐programming approach to continuous‐review obsolescent inventory problems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 44(8), pages 757-774, December.
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