Optimal Ordering Procedures for a Multi-Item Common Supplier System

Abstract

This chapter presents two models for a multi-item common supplier system with constant and random demand rates respectively for various items. In the first model, optimal inventory-management rules are developed allowing for planned stockouts, whose optimal values are determined on the basis of the total cost minimization. The second model is structured on new heuristics ordering rules for managing multi-items. In this model, the inventory position for each item is continuously reviewed and an order is placed when the projected stockout cost for all items exceeds a certain multiple of the average ordering cost. Rules are offered for determining which items to include in the order, and also for determining order-up-to-level for each item. These rules involve two parameters, whose optimal values are estimated by simulation.