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Aviv, Yossi, Federgruen, Awi, "Capacitated multi-item inventory systems with random and seasonally fluctuating demands: Implications for postponement strategies", Management Science, Vol. 47, No. 4, Apr 2001, pp. 512-531.



Multi-item inventory systems with random and seasonally fluctuating, and possibly correlated, demands are addressed. 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. An accurate lower bound and close-to-optimal heuristic strategies of simple structure are developed. The gap between them, evaluated in an extensive numerical study, is on average only 0.45%. This model is used to investigate the benefits of various delayed product differentiation (postponement) strategies, as well as other strategic questions, including: 1. the benefits of flexible versus dedicated production facilities, 2. the trade-off between capacity and inventory investments, and 3. the trade-off between capacity investments and service levels.