Multi-Item Inventory Systems with a Service Objective

In this paper, we examine the problem of specifying single-item service objectives in a multi-item inventory system subject to a system wide service level constraint. We develop a computationally efficient algorithm, the Generalized Knapsack Duality (GKD) Algorithm, to find approximately optimal policies for such a system. Our computational experience with inventory systems, typical of many found in the real world, indicates that operating costs can be reduced significantly when this model is used rather than the simpler uniform service model often used in practice.