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 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.

advance policy changes, excess stock, installed base, inventory control, obsolescence, spare parts
Erasmus School of Economics
hdl.handle.net/1765/18640
Econometric Institute Research Papers
Report / Econometric Institute, Erasmus University Rotterdam
Erasmus School of Economics

Pinçe, C, & Dekker, R. (2010). A Continuous Review Inventory Model with Advance Policy Change and Obsolescence (No. EI 2009-45). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–37). Erasmus School of Economics. Retrieved from http://hdl.handle.net/1765/18640