Inventory policy for products with short life cycles

The unanticipated shortening of a product’s life cycle can have a dramatic effect on inventory costs. Where the cause is physical decay or an unexpected decline in demand, producers can quickly find themselves quickly holding inventory that has degraded value or no value at all. In this research, we propose that an inventory system with this characteristic can be modeled as a Markov Process with the state defined in terms of product value. Different inventory control policies can then be modeled and compared based on expected cost. Simple numerical examples are included to illustrate implementation.