Multi-Item Inventory Management with Monetary Objective Function

Abstract

This paper summarizes an actual multi-item periodic-review inventory control study where the “order-up-to-S” policy is employed. The objective function is expressed in monetary terms and is optimized subject to a budgetary limit on the maximum amount of money that can be tied up in inventories. The optimal solution is obtained by employing the generalized Lagrange multipliers method. Findings indicate that it is possible to decrease by at least 37.5% the amount of money currently invested in inventories while maintaining an 85-90% service level to customers. In this study a considerable amount of effort is also spent on the estimation of cost parameters, especially the shortage cost.