Disposal decisions under predetermined pricing policies

The economic progress of product recovery facilities (PRFs) is often bogged down by the inventory imbalances arising from the hard-to-predict arrival rates of discarded products and the stochastic demand trends for the recovered components. In spite of adopting an effective pricing policy a strategy to minimize inventory fluctuations , the inventory levels may skyrocket when there is an unexpected surge in the quantity of discarded products. Under this scenario PRFs have two options: either to dispose the surplus items or to stock them in anticipation of the future demand. This paper is concerned with PRFs optimal disposal decisions when the actual demand and the forecasted demand go out of sync, rendering the existing price policy suboptimal. The problem is modeled as a stochastic dynamic programming model. The analysis of the optimal disposal policy indicates that disposal is preferable when the carrying cost exceeds the disposal cost.