Abstract: A multiproduct multiperiod inventory problem with downward substitution was addressed. According to character of oneway substitution between the products， a model about order for products to ensure service was proposed when an inventory manager should make order for these products. The simulation annealing algorithm embedded with a simulation procedure was developed to get the maximal levels of products. Taking advantage of the substitution， the reorder point can be lowered without reduction of service level. The lower reorder point means less average inventory and lower order frequency. While the reduction of reorder point influences some varying parameters， such as the service level requirement， ordering cost and holding cost. With increase of reorder cost or decrease of holding cost， inventory will replenish more products frequently， which means the mitigation of the positive effect of the substitution.

Key words: oneway substitution, multiproduct inventory, multiperiod inventory, inventory strategy, simulation annealing