A Replenishment-Disposal Policy for an Inventory System with Inflows

In this study, we develop and analyze a replenishment-disposal policy for a continuous review inventory system with independent inflows. We assume that the return and demand flows are independent and the net demand pattern is governed by a Brownian motion process. Under the fixed procurement lead-time and backordering assumptions, we derive the analytical expressions of the operating characteristics of the system. A numerical analysis is conducted to study the sensitivity of the best policy parameters vis a vis the system parameters. Our numerical findings indicate that inclusion in the inventory control policy of a disposal option results in significant improvement in the cost rate. The impact of the disposal option increases as the overall variability of the net demand process increases - a finding which is especially important for settings with fairly balanced external demand and inflow rates.

More information: contact nzerhane@rsm.nl