Common component inventory problems with a budget constraint: Heuristics and upper bounds

This paper addresses a so-called assemble-to-order environment. There are a number of end items each of which requires an assembly of several components. Some of the components are unique to specific end items while others are common to two or more final products. Components must, due to the leadtimes, be ordered prior to knowing the end item demand levels (assumed poisson distributed), but final assemblies can be completed after knowing the demands. The objective is to maximize the expected profit contribution subject to a budget constraint on the component inventory investment. The resulting two-stage stochastic programming problems obtained are very difficult, if not impossible, to solve. Heuristics and bounding procedures that give good results have therefore been suggested. The proposed heuristics can easily be extended to problems with continuous demand distributions.