Optimal Groupings of Inventory Items for a Common Order Cycle System

Abstract

A Common Order Cycle (COC) system is a multi-item inventory system where the items in stock are classified into several subgroups and all items in a particular group are replenished jointly by a common order cycle per group. The problem is to group N inventory items into r subgroups so as to minimize the inventory related cost. In this research, a stochastic demand model of the COC system was developed and dynamic programs were prepared for both optimal and approximate groupings. The proposed approximate algorithm gives, in effect, the optimal grouping for N and r given. It is also shown that the Relative Excess Cost (REC) for the COC system, compared to the cost of the non-grouping system, becomes very small for schemes involving more than three subgroups.