On the benefits of pooling in production–inventory systems

On the benefits of pooling in production–inventory systems

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Article ID: iaor20073500
Country: United States
Volume: 51
Issue: 4
Start Page Number: 548
End Page Number: 565
Publication Date: Apr 2005
Journal: Management Science
Authors: , ,
Keywords: make-to-stock
Abstract:

We study inventory pooling in systems with symmetric costs where supply lead times are endogenously generated by a finite-capacity production system. We investigate the sensitivity of the cost advantage of inventory pooling to various system parameters, including loading, service levels, demand and production time variability, and structure of the production system. The analysis reveals differences in how various parameters affect the cost reduction from pooling and suggests that these differences stem from the manner in which the parameters influence the induced correlation between lead-time demands of the demand streams. We compare these results with those obtained for pure inventory systems, where lead times are exogenous. We also compare inventory pooling with several forms of capacity pooling.

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