Service Parts Inventory Control under Obsolescence
Speaker
Abstract
| In this paper, we consider a single-location inventory system of a slow moving item with Poisson demand where the demand rate drops to a lower level at a known future time. Under the assumptions of full backordering and fixed lead times, we incorporate obsolescence into a one-for-one policy with the option to reduce the base stock level in advance. We propose a three parameter policy to control the timing of the shift from high base stock level to the low one. For the special case of identical base stock levels, we show that the optimal base stock level can be calculated from a critical ratio inequality. For different base stock levels, we derive the exact expression for the expected total discounted cost function by partly relying on Fast Fourier Transform method and suggest a numerical optimization procedure to find the optimal values of the policy parameters. Our results suggest that the policy change option leads to pronounced cost savings especially when obsolescence requires a relatively large adjustment in base stock level. We find that ignoring obsolescence in control policy increases costs significantly. Moreover, when obsolescence can be foreseen, early adaptation of base stock levels can lead to important savings. |
| Contact information: |
| Dr. K.J. Roodbergen |
