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Two modifications of the least cost per period heuristic for dynamic lot-sizing

Author

Listed:
  • J C Ho

    (The University of Texas at El Paso)

  • Y-L Chang

    (Georgia Institute of Technology)

  • A O Solis

    (The University of Texas at El Paso)

Abstract

This paper proposes two constructive heuristics for the well-known single-level uncapacitated dynamic lot-sizing problem. The proposed heuristics, called net least period cost (nLPC) and nLPC(i), are developed by modifying the average period cost concept from Silver and Meal's heuristic, commonly known as least period cost (LPC). An improved tie-breaking stopping rule and a locally optimal decision rule are proposed in the second heuristic to enhance performance. We test the effectiveness of the proposed heuristics by using 20 benchmarking test problems frequently used in the literature. Furthermore, we perform a large-scale simulation study involving three factors, 50 experimental conditions, and 100 000 randomly generated problems to evaluate the proposed heuristics against LPC and six other well-known constructive heuristics in the literature. The simulation results show that both nLPC and nLPC(i) produce average holding and setup costs lower than or equal to those of LPC in every one of the 50 experimental conditions. The proposed heuristics also outperform each of the six other heuristics evaluated in all experimental conditions, without an increase in computational requirements. Lastly, considering that both nLPC and nLPC(i) are fairly simple for practitioners to understand and that lot-sizing heuristics have been commonly used in practice, there should be a very good chance for practical applications of the proposed heuristics.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:jorsoc:v:57:y:2006:i:8:d:10.1057_palgrave.jors.2602076
    DOI: 10.1057/palgrave.jors.2602076
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    References listed on IDEAS

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    1. Harvey M. Wagner & Thomson M. Whitin, 1958. "Dynamic Version of the Economic Lot Size Model," Management Science, INFORMS, vol. 5(1), pages 89-96, October.
    2. Pan, C-H, 1994. "Sensitivity analysis of dynamic lot-sizing heuristics," Omega, Elsevier, vol. 22(3), pages 251-261, May.
    3. 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.
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    Cited by:

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