An inventory control system for products with optional components under service level and budget constraints

Modularization and customization have made enterprises face the multi-item inventory problems and the interactions among those items. A powerful, affordable information technology system can make the continuous review inventory policy more convenient, efficient, and effective. In this study, a (Q, r) model is developed to find the optimal lot size and reorder point for a multi-item inventory with interactions between necessary and optional components. In order to accurately approximate costs, the service cost is introduced and defined in proportion to the service level. In addition, the service cost and purchasing cost are taken simultaneously, and are treated as a budget constraint for executives to consider because the firm's strategy could influence the choice of service level. The proposed model is formulated as a nonlinear optimization problem, as the service level is nonlinear. Thus, some known procedures are revised to solve this problem and the results are compared with other models. The results show that the revised procedure performs better than the N-R procedure, leading to important insights about inventory control policy. (c) 2007 Elsevier B.V. All rights reserved.