Component allocation and ordering policy in a multi-component, multi-product assembled to stock system

Abstract

This paper considers a two-echelon assembled-to-stock system, consisting of several components and products, where a periodic review policy is used. Some components are common to several products. We propose a component allocation policy that attempts to minimize the total cost which consists of the holding cost and the shortage cost. This policy takes advantage of the sharing of common components. We use simulation, infinitesimal perturbation analysis and steepest descent algorithm to find the components’ order-up-to levels for the proposed policy and then compare its effectiveness with two policies that do not allow the sharing of common components. For the scenarios that we have run, the numerical results show that the proposed policy gives the lowest total cost. In addition, we have show the benefits of risk pooling from common component sharing and the echelon effect under different range of parameters.