Optimal Control of an Inventory with Simultaneous Obsolescence

We consider the problem of determining the optimal ordering and reordering policy for an inventory where the entire stockwill simultaneously become obsolete at some (typically random) time, T . Manymanufacturing, 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/stochastic demand obsolescence inventorymodel, and calculate its optimal control policy. Our solution technique is geared towards problems with large inventories and small holding costs.