Managing product variety poses several challenges at the manufacturer’s end in terms of inventory control. Many manufacturers incur increased inventory costs (raw material, in process and finished goods) to guarantee high quality of service to customers. Many companies seeking the right balance of product variety, flexibility and costs choose to manufacture products in a batch production mode. However, batch production systems involve complex trade-offs between productivity losses resulting from making too many small batches and the costs of tying up working capital in inventory as large batches. These trade-offs gets magnified as product variety increases. The objective of this research is to develop a simple analytical model for capacitated multi-product batch production systems that could be used to analyze the trade-offs involved in production inventory decisions and their impact on inventory holding costs, customer backorders, and service levels. The objective is to investigate the effect of system parameters such as product variety, production batch size on performance measures such as backorders and service levels.