A multi-period inventory model to incorporate with inventory age, accounting principle, and product structure: A case study in a make-to-stock semiconductor integrated device manufacturer

Statement of Financial Accounting Standards (SFAS) No.10 has been declared as accounting principle for allowance for reduction of inventory to market in Taiwan since December 31, 2008. It has become more difficult for semiconductor integrated device manufacturers, using make-to-stock manufacturing strategy and possessing inventory accounting for about 14% total costs, to maintain robust records in financial statements. A case company has to write down loss of 2% to 100% of total inventory cost for products with inventory ages of 3 to more than 18 months. However, average cycle times of producing flash memory are about three months. In other words, when system variation and safety stock policy are further taken into account, the company has to write down allowance for reduction of inventory to market for most work-in-process inventory. However, little research has been done with these regards to address practical management of operations according to inventory aging process. Therefore, this study aims to propose a holistic inventory model to incorporate with inventory ages, accounting principles, and product structures (e.g., bill of material) for robust estimation of inventory cost to reduce the impact of carrying value fluctuation of inventory. An empirical study will be conducted in a Taiwanese semiconductor manufacturer.