Awi Federgruen

Coordinated replenishments in a multi-item inventory system with compound Poisson demands

Coauthor(s): Henri Groenevelt, H. C. Tijms.

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Abstract:
In many practical applications of multi-item inventory systems significant economies of scale can be exploited when coordinating replenishment orders for groups of items. This paper considers a continuous review multi-item inventory system with compound Poisson demand processes; excess demands are backlogged and each replenishment requires a lead time. There is a major setup cost associated with any replenishment of the family of items, and a minor (item dependent) setup cost when including a particular item in this replenishment. Moreover there are holding and penalty costs. We present an algorithm which searches for a simple coordinated control rule minimizing the long-run average cost per unit time subject to a service level constraint per item on the fraction of demand satisfied directly from on-hand inventory. This algorithm is based on a heuristic decomposition procedure and a specialized policy-iteration method to solve the single-item subproblems generated by the decomposition procedure. The model applies to multi-location inventory systems with similar cost structures for coordinated deliveries.

Source: Management Science
Exact Citation:
Federgruen, Awi, H. Groenevelt, and H. C. Tijms. "Coordinated replenishments in a multi-item inventory system with compound Poisson demands." Management Science 30, no. 3 (March 1984): 344-357.
Volume: 30
Number: 3
Pages: 344-357
Date: 3 1984