Traditional inventory policy was deeply investigated for various kinds of demand in different industrial sectors. More extensive explorations on inventory policy, including the combination with manufacturing process, detailed attributes of the purchased products, etc. was conducted by many researchers. During manufacturing process, lifespan of cutting tools have significant impact on both the quantity of inventory and production cost. In this paper, the impact of maximum allowable stopping time for cutting tools on production-inventory policy under general production demands was investigated. An optimal inventory policy with general demand (OIPGD) was developed with which the allowable stopping time for tools, order-up-to-level inventory, and order cycle can be optimally determined by an exhaustive searching algorithm. Examples with different distributions on tool lifespan and production demand is presented to show the implementation of the OIPGD model. The results and the sensitivity analysis about the parameters show that optimized combination of selection for tool allowable stopping time, order-up-to-level, and order cycle time can dramatically minimize the total cost of the whole inventory activity.