In this paper, we investigate an inventory system where a single manufacturer purchases and processes raw materials in order to deliver multiple items to multiple retailers. Earlier study in this type of supply chain only consider a single raw material in order to produce single item, but we consider raw materials in order to produce multiple items. Also, we develop an iterative solution procedure to find the order quantity for the multiple items and raw materials, and the number of shipments between manufacturer and retailers that minimizes the total cost per unit time of the raw materials ordering and holding, manufacturer`s setup and finished items holding, the retailer`s ordering and inventory holding. Numerical examples are presented to show that the proposed heuristic gives good performance.