Inventory Policies for a Make-to-Order System with a Perishable Component and Fixed Ordering Cost

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-n(1), S1/n) policy is optimal. Under this policy, S1/n 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-n(1)) 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. (C) 2009 Wiley Periodicals, Inc. Naval Research Logistics 56: 177-141, 2009