Optimal disposal policies

In this paper we analyze the inventory model in which the disposal of surplus items is taken into consideration as well as the purchase of stock in anticipation of future demand. Our main concern is to formulate the optimal ordering and disposal policy in a simple form, and it is assumed that the decision to be made at the beginning of each period is always one of the following: (1) ordering, (2) disposal, (3) no ordering and no disposal. The multiple installation model is treated by the method of implied penalty described by Clark and Scarf. The simple optimal policies are explicitly determined under various sets of assumptions on the cost structure of the inventory model.