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

Author

Listed:
  • Yossi Aviv

    (Olin School of Business, Washington University, St. Louis, Missouri 63130)

  • Awi Federgruen

    (Columbia Graduate School of Business, New York, New York 10027)

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.

Suggested Citation

  • Yossi Aviv & Awi Federgruen, 2001. "Capacitated Multi-Item Inventory Systems with Random and Seasonally Fluctuating Demands: Implications for Postponement Strategies," Management Science, INFORMS, vol. 47(4), pages 512-531, April.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:4:p:512-531
    DOI: 10.1287/mnsc.47.4.512.9829
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    References listed on IDEAS

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