Optimization of scrapping decisions: Theory and applications

Contrary to the variety of models and procedures for optimizing the ordering decision in inventory control theory, no comparable tools exist for the scrapping decision. Thus, the current paper constitutes a step in this direction. Using a simple deterministic model, the basic economics and structure of the problem are introduced first. Then we determine explicitly scrap-optimal turn-around-times as well as the corresponding scrap- and rest-quantities. Accounting for the stochastic nature of demand, the model is generalized and algorithms for determination of optimal scrapping decision are discussed. Finally we compare the results and discuss practical applications.