Augmenting the lot sizing order quantity when demand is probabilistic

I. Nyoman Pujawan*, Edward A. Silver

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

In this paper we consider a single item, discrete time, lot sizing situation where demand is random and its parameters (e.g., mean and standard deviation) can change with time. For the appealing criterion of minimizing expected total relevant costs per unit time until the moment of the next replenishment we develop two heuristic ways of selecting an appropriate augmentation quantity beyond the expected total demand through to the planned (deterministic) time of the next replenishment. The results of a set of numerical experiments show that augmentation is important, particularly when orders occur frequently (i.e., the fixed cost of a replenishment is low relative to the costs of carrying one period of demand in stock) and the coefficient of variability of demand is relatively low, but also under other specified circumstances. The heuristic procedures are also shown to perform very favourably against a hindsight, baseline (s, S) policy, especially for larger levels of non-stationarity.

Original languageEnglish
Pages (from-to)705-722
Number of pages18
JournalEuropean Journal of Operational Research
Volume188
Issue number3
DOIs
Publication statusPublished - 1 Aug 2008

Keywords

  • Heuristics
  • Inventory control
  • Lot sizing
  • Production
  • Stochastic

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