An Inventory Model with Product Obsolescence and its Implications for High Technology Industry

The advent of micro-computers and other high technology products, such as visual inspection systems and robots, with their supporting hardware/software components has been paralleled with an appreciable increase in the number of distribution outlets. Each commercial outlet has to carry enough inventory to provide proper service to its customers. However, due to the fast change in the technology involved, numerous inventory items become obsolete at a rapid rate. The situation can be treated as a perishable inventory problem. This paper develops that analogy, and presents the expressions for the: Required stock level, Optimal order quantity, and Total cost of the inventory policy. It is shown that as obsolescence rate increases, the Kanban (Just-in-Time) concept of purchasing, lot sizing, and inventories should be considered by the hierarchical organizations or the distribution network.