A simple decision rule for products substitution

Products substitutions are frequently met in real life. In this paper, we study a continuous review two-product inventory system with products substitutions. Given safety stock levels and demand arrival rates, we provide an efficient procedure to evaluate system performances under different substitution policies, and then the optimal substitution rule is straightforward. Simulation studies conducted to test the validity of this procedure indicate that it performs very well. Lastly we give some numerical results to analyze the effects of different parameters on the optimal rule.