Stock replenishment policies for a stochastic exponentially-declining demand process

This paper addresses the problem of determining stock replenishment policies to meet the demand for spare parts for items of equipment which are no longer manufactured. The assumptions that the number of items still in use is decreasing and that parts fail randomly lend credence to a Poisson demand process with an underlying mean which is decreasing exponentially. We use a dynamic programming formulation in continuous time to determine that replenishment policy which minimises the mean total discounted cost of set-up/order, unit production/purchase, unsatisfied demand and stock left over at the end of the time horizon.

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