Determination of Excess Stock Quantities

A procedure is described which can be used as an aid in solving the following problem: given excess stock of an inventory item, how much should be disposed of at a scrap price, and how much should be retained for regular sale, in order to minimize the present value of all the relevant costs. The minimum cost retention quantity is determined using a sequential search procedure based on the “Golden Section.” For each retention quantity considered, a procurement schedule is determined heuristi-cally according to a set of rules based on economic order quantities and economic “bridging” quantities. The costs associated with the determined procurement schedule and the scrap and retention quantities are discounted and summed to give the total present value cost. The heuristic method of determining procurement schedules is compared with a dynamic programming method. The results of applying the procedure to some inventory items are given.