Improving technology, variable customer demands, variety of products and increasing improvement of production systems has brought storage facilities, which has an important role on business operations, to a critical point. This circumstance has revealed the necessity on activating of storage systems and operations. In this study, mathematical model, which minimizes simultaneously storage allocation, storage retrieval and storage keeping costs, is generated for an AS/RS system of an enterprise. The mathematical model has run for small solution space and optimal solution is obtained. The problem in this study is an NP hard problem that is why optimal solution cannot be obtained for large solution spaces. So the problem in existing system is solved by using simulated annealing and an optimal order policy is proposed. © 2012 Elsevier Inc.