THE OPTIMALITY OF THE “CUT ACROSS THE BOARD” RULE APPLIED TO AN INVENTORY MODEL

A common procedure in budget allocation is to let the different entities of an organization determine their optimal budgets. Once the individual requests are received, they are then cut by a common factor, as necessary, so that a global constraint is satisfied. We refer to this procedure as the “cut across the board” rule. In general, this method will not result in a globally optimal solution. In this paper we identify conditions that assure the global optimality of die “cut (or expand) across the board” rule. We specifically focus on a constrained multi-item inventory model and generalize results of Rosenblatt [10] and Plossl and Wight [8]. In addition, we briefly discuss applicability of the results to other areas.

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