An Optimal Heuristic For Coordinated Multi-Item Inventory Replenishments

Abstract

The inventory control problem can be vastly simplified if the replenishments of inventory items are coordinated with one another. That is, whenever an item is replenished, n other items, where n is a decision variable, are also replenished. One way to ensure this would be to classify the inventory items into several groups with a common order interval for each group. In this paper we establish that the optimal groups will be consecutive by hD/A, where h, D and A are the holding cost, demand rate and set-up cost of an item respectively. Using this property of consecutiveness, we develop a fast converging heuristic to create m groups optimally, m = 2, 3,..., M. The heuristic is a substitute for the dynamic programme which would otherwise be necessary and it has the potential for nomographic applications.

Keywords:

• grouping
• heuristic
• inventory coordination
• joint group orders
• nomograph