Dynamic Inventory Control for Innovative Products with Substitution

An inventory problem with two products including new generation product and old generation product was considered in this paper, where the demand for old generation product can be substituted by the new generation product. An optimal inventory control model over finite periods for two products was proposed. Under the assumption that the inventory system obeys the base-stock policy, the optimal dynamic decision problem was translate into an optimal parameter selection problem. Some important properties of objective function were established, such as concaveness, and the optimal parameters could be obtained by the dynamic programming algorithm. Final, the parameter analysis was given.