An Analysis of a Multi-Line Re-Order System Using a Can-Order Policy

Abstract

This paper analyses an inventory system which employs a “can-order” policy. Under such a policy lines of stock are re-ordered when they run out, and at these times lines which have not run out are also re-ordered if the stock levels in particular lines are below the “can-order level.” The well-known policies of independent and of joint re-orders are extreme cases of a can-order policy. Optimal values of the initial stock level and the can-order level are found, and are given in graphical form for the cases of 2 and 3 identical lines. An approximate method is described which finds these values for higher numbers of lines, and the method is shown to be a significant improvement on the two basic policies. Finally, the extension of the model to the general case, in which each line may have a separate unit holding cost and a separate sales rate, is discussed and some proposals made for optimisation.