Inventory policies for a make-to-order system with a perishable component and fixed ordering cost

Abstract

We consider a make-to-order production system where two major components, one nonperishable (referred to as part 1) and one perishable (part 2), are needed to fulfill a customer order. In each period, replenishment decisions for both parts need to be made jointly before demand is realized and a fixed ordering cost is incurred for the nonperishable part. We show that a simple (s n, S 1n, S 2n) policy is optimal. Under this policy, S 2n along with the number of backorders at the beginning of a period if any and the availability of the nonperishable part (part 1) determines the optimal order quantity of the perishable part (part 2), while (s n, S 1n) guide when and how much of part 1 to order at each state. Numerical study demonstrates that the benefits of using the joint replenishment policy can be substantial, especially when the unit costs are high and/or the profit margin is low. © 2009 Wiley Periodicals, Inc.