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Dynamic demand lot-sizing rules for incremental quantity discounts

Author

Listed:
  • J Hu

    (Washington State University)

  • C L Munson

    (Washington State University)

Abstract

Numerous studies have developed and compared lot-sizing procedures for finite-horizon dynamic demand, material requirements planning (MRP), environments when either no purchase discounts exist or for the case of all-units quantity discounts. This paper examines lot-sizing rules when product price schedules follow incremental quantity discounts. The optimal (non-discount) procedure and some traditional heuristic procedures are modified to incorporate incremental quantity discounts. We further modify two heuristics with a ‘look-ahead enhancement’ that performs very well under experimentation. Numerical tests revealed the overall best-performing heuristic in this study to be a modified ‘least-unit cost’ method with a look-ahead enhancement. That procedure produced an average cost penalty vs optimal of 0.26%.

Suggested Citation

  • J Hu & C L Munson, 2002. "Dynamic demand lot-sizing rules for incremental quantity discounts," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(8), pages 855-863, August.
    • Handle: RePEc:pal:jorsoc:v:53:y:2002:i:8:d:10.1057_palgrave.jors.2601373
    DOI: 10.1057/palgrave.jors.2601373
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    Citations

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    Cited by:

    1. Chung, Wenming & Talluri, Srinivas & Narasimhan, Ram, 2015. "Optimal pricing and inventory strategies with multiple price markdowns over time," European Journal of Operational Research, Elsevier, vol. 243(1), pages 130-141.
    2. Munson, C.L. & Hu, J., 2010. "Incorporating quantity discounts and their inventory impacts into the centralized purchasing decision," European Journal of Operational Research, Elsevier, vol. 201(2), pages 581-592, March.
    3. J Hu & C L Munson & E A Silver, 2004. "A modified Silver–Meal heuristic for dynamic lot sizing under incremental quantity discounts," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 55(6), pages 671-673, June.
    4. Mendoza, Abraham & Ventura, José A., 2008. "Incorporating quantity discounts to the EOQ model with transportation costs," International Journal of Production Economics, Elsevier, vol. 113(2), pages 754-765, June.
    5. J C Ho & Y-L Chang & A O Solis, 2006. "Two modifications of the least cost per period heuristic for dynamic lot-sizing," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(8), pages 1005-1013, August.
    6. Lin, Hung-Tso & Chang, Wen-Ling, 2008. "Order selection and pricing methods using flexible quantity and fuzzy approach for buyer evaluation," European Journal of Operational Research, Elsevier, vol. 187(2), pages 415-428, June.

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