Capacitated multi-item inventory systems with random and seasonally fluctuating demands: Implications for postponement strategies

We e address multi-item inventory systems with random and seasonally fluctu ating and possibly correlated, demands. The items are produced in two stage s, each with its own lead-time; in the first stage a common intermediate pr oduct is manufactured. The production volumes in the first stage are bounde d by given capacity limits. We develop an accurate lower bound and close-to -optimal heuristic strategies of simple structure. The gap between them, ev aluated in an extensive numerical study, is on average only 0.45%. We use t he model to investigate the benefits of various delayed product differentia tion (postponement) strategies, as well as other strategic questions, inclu ding (i) the benefits of flexible versus dedicated production facilities; ( ii) the trade-off between capacity and inventory investments, and (iii) the trade-off between capacity investments and service levels.