From the manufacturer’sperspective,

From the manufacturer’s
perspective, if it can apply a more sophisticated inventory holding policy, which allows the
constant usage of the stockpile to meet the regular market demand, and at the same time
refill with new production to maintain the minimum stockpile requirement; then, the firm
can save on the total cost in maintaining the stockpile inventory, hence making it possible to
further reduce the price charged to the government. From the government’s perspective, if it
allows firms to sell the pills earlier, there is an opportunity to capture a significant amount
of salvage value for the unsold stockpile. The challenge of this problem lies in efficiently
maintaining a minimum level of perishable inventory.