Analysis of an assemble-to-order system with different review periods

We consider a single item assembled from two components. One of the components has a long leadtime, high holding cost and short review period as compared to the other one. We assume that net stocks are reviewed periodically, customer demand is stochastic and unsatisfied demand is back ordered. We analyze the system under two different policies and show how to determine the policy parameters minimizing average holding and backorder costs. First, we consider a pure base stock policy, where orders for each component are placed such that the inventory position is raised up to a given base stock level. In contrast to this, only the orders for one component follow this logic while the other orders are synchronized in case of a balanced base stock policy. Through mathematical analysis, we come up with the exact long-run average cost function and we show the optimality conditions for both policies. In a numerical study the policies are compared and the results suggest that the balanced base stock policy works better than the pure base stock policy under low service levels and when there is a big difference in the holding costs of the components.