Capacitated two-stage multi-item production/inventory model with joint setup costs

Capacitated two-stage multi-item production/inventory model with joint setup costs

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Article ID: iaor1993927
Country: United States
Volume: 39
Issue: 3
Start Page Number: 443
End Page Number: 455
Publication Date: May 1991
Journal: Operations Research
Authors: ,
Keywords: inventory: storage, storage
Abstract:

The authors analyze a continuous-time, two-stage production/inventory system. In the first stage, a common intermediate product is produced in batches, and possibly stored. In the second phase, the intermediate product is fabricated into n distinct finished products. Several finished products may be included in a single production batch of limited capacity to exploit economies of scale. The authors propose a planning methodology to address the combined problem of joint setup costs and capacity limits (per setup). They restrict themselves to a class of replenishment strategies with the following properties: a replenishment strategy specifies a collection of families (subsets of items) covering all end-items; if an item belongs to several families a specific fraction of its sales is assigned to each family. Each time the inventory of one item in a family is replenished, the inventories of all other items in the family are replenished as well. The authors derive a simple (roughly O(nlogn)) algorithm that results in a strategy whose long-run average cost comes within a few percentage points of a lower bound for the minimum achievable cost (within the above class of strategies).

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