Joint Inventory Replenishments with Group Discounts Based on Invoice Value

The study focuses attention on a grouping procedure for the purpose of joint inventory replenishments from a single supplier. The grouping procedure exploits the group discounts available on the total purchase value of a group of index and the economies of scale of order placing costs. In particular it is shown that the optimal groups are formed such that the annual (dollar) usage values of the items do not decrease (may increase or stay the same), from the first to the last group. This is similar in concept to the well-known ABC classification of inventory items. The grouping problem is modeled as a “shortest-path” using the above property.