A dynamic inventory system with recycling

This paper deals with a periodic review inventory system in which a constant proportion of stock issued to meet demand each period feeds back into the inventory after a fixed number of periods. Various applications of the model are discussed, including blood bank management and the control of reparable item inventories. We assume that on hand inventory is subject to proportional decay. Demands in successive periods are assumed to be independent identically distributed random variables. The functional equation defining an optimal policy is formulated and a myopic base stock approximation is developed. This myopic policy is shown to be optimal for the case where the feedback delay is equal to one period. Both cost and ordering decision comparisons for optimal and myopic policies are carried out numerically for a delay time of two periods over a wide range of input parameter values.