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On the Benefits of Pooling in Production-Inventory Systems

Department of Mechanical Engineering, Graduate Program in Industrial Engineering, University of Minnesota, Minneapolis, Minnesota 55455
Department of Mechanical Engineering, Graduate Program in Industrial Engineering, University of Minnesota, Minneapolis, Minnesota 55455
Strategy Consulting Team, Samsung SDS, Seoul, 135-918, Korea
saif{at}umn.edu
billcoop{at}me.umn.edu
jkim{at}me.umn.edu

We study inventory pooling in systems with symmetric costs where supply lead times are endogenously generated by a finite-capacity production system. We investigate the sensitivity of the cost advantage of inventory pooling to various system parameters, including loading, service levels, demand and production time variability, and structure of the production system. The analysis reveals differences in how various parameters affect the cost reduction from pooling and suggests that these differences stem from the manner in which the parameters influence the induced correlation between lead-time demands of the demand streams. We compare these results with those obtained for pure inventory systems, where lead times are exogenous. We also compare inventory pooling with several forms of capacity pooling.

Key Words: production-inventory systems; make-to-stock queues; inventory pooling; demand correlation
History: Received: January 30, 2003;

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