Determining optimal inventory levels for items nearing the end of a production run
Optimal inventory policies determined for items in steady state production are no longer optimal when reaching the end of production. This is due to the obvious fact that during this time, production is no longer in steady state. At the end of a production run, steady state inventory policies can lead to excess costs, as on hand and due-in inventory is no longer need as there is no following period's demand. In this thesis, a newsvendor inventory optimization model which considers salvage value and initial inventory level along with two alternative (s, S) model formulations are tailored to fit items nearing the end of a production run. One of the (s, S) inventory models is modified to include a salvage value and reduce computation time. The three models are demonstrated on a twenty-item example problem and the newsvendor model is selected as the best application for items one lead-time period from the end of production. The cost related benefits of the alternative inventory policies generated by the newsvendor model are analyzed using a simulation-based approach. Although the ideas and analysis presented here were developed and tailored to fit the aerospace industry, the mathematical models can be extended to fit a variety of different applications.
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