Trade-off between capacity invested and inventory needed
H. Jodlbauer, K. Altendorfer - Trade-off between capacity invested and inventory needed - EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, Vol. 203, No. 1, 2010, pp. 118-133
A multi-item capacitated make-to-order production system with considerable demand fluctuations is discussed. The relationship between the available capacity and the inventory needed to meet customer requirements with a pre-defined service level is modeled. Furthermore, the total cost for both capacity and inventory is minimized and it is shown that, assuming negligible changeover times, the double of the surplus inventory cost has to be equal to the excess capacity cost to ensure minimum total cost.