REDUCING SYSTEM NERVOUSNESS IN MULTIPRODUCT INVENTORY SYSTEMS

In many paractical multi-product systems a joint setup cost is incurred when at least one product is ordered and an individual setup cost for each product is ordered. In those cases joint replenishment policies will lead to lower cost compared to independent replenishment of each product. We consider periodic review multi-product systems with independent stochastic demand. The objective is to find a replenishment policy which minimizes the long-run average setup and holding cost per unit time subject to a service level constraint. We examine the behaviour of the system under a rolling-horizon approach. Solving a deterministic problem gives a replenishment schedule for next N periods. The decision for the first period in the deterministic problem is implemented in the stochastic system. Due to the stochastic demand the actual sizes and timing will be different, referred to as system nervousness. We propose a procedure to adjust this decision in order to reduce the system nervousness. Simulation experiments show cost reductions between 2% and 8% and cost performance comparable with can-order strategies.