Optimizing Inventory Policy in Anticipation of Obsolescence: A Simulation of Step-Wise Advance Stock Reductions

Inventories can experience high obsolescence costs if there is no policy in place to avoid being left with expensive obsolete stock. Especially for slow moving spare parts inventories this can be an issue. In this paper I investigate the effects of different inventory policies that seek to minimize costs in the face of obsolescence. I replicate the paper of Pin¸ce and Dekker (2011) and re-affirm their findings, but caution against a bias in their model. The optimal time to change start reducing stock lies even earlier than they predicted. Ultimately, a gradual inventory policy change yields the best results as it allows for backorder costs and obsolescence costs to be reduced.