Capacitated Multi-Item Inventory Systems with Random and Seasonally Fluctuating Demands: Implications for Postponement Strategies

Yossi Aviv and Awi Federgruen
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Yossi Aviv: Olin School of Business, Washington University, St. Louis, Missouri 63130
Awi Federgruen: Columbia Graduate School of Business, New York, New York 10027

Management Science, 2001, vol. 47, issue 4, 512-531

Abstract: We address multi-item inventory systems with random and seasonally fluctuating, and possibly correlated, demands. The items are produced in two stages, each with its own lead-time; in the first stage a common intermediate product is manufactured. The production volumes in the first stage are bounded by given capacity limits. We develop an accurate lower bound and close-to-optimal heuristic strategies of simple structure. The gap between them, evaluated in an extensive numerical study, is on average only 0.45%. We use the model to investigate the benefits of various delayed product differentiation (postponement) strategies, as well as other strategic questions, including (i) the benefits of flexible versus dedicated production facilities; (ii) the trade-off between capacity and inventory investments; and (iii) the trade-off between capacity investments and service levels.

Keywords: Multi-Item; Multi-Echelon; Inventory Model; Markov Decision Process; Dynamic Programming; Design for Postponement; Capacity (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (32)

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