The critical cut-off value approach for dynamic lot sizing problems with time varying cost parameters

Abstract

Consider the dynamic lot sizing problems without backlogging. If the ordering, purchasing and holding costs are stationary, the existing heuristics are found to be very efficient. When these cost parameters vary over time periods, no effective heuristics have been found in the literature to handle these problems. Based on the simple critical cut-off criteria, a heuristic is proposed in this paper to take care of the varying cost environment. The heuristic is an extension of the eyeballing heuristic and is extremely easy to use and can be done manually. It is far more simple than any existing algorithm and yet has promising results. The heuristic also has simple underlying principles and possesses fundamentally sound characteristics. In view of the simplicity of the algorithm, an integration with other heuristics to solve related inventory problems may be possible. In a dynamic lot sizing problem with time varying cost parameters, a sequence of critical cut-off values is used for each ordering point to compare with the demands in order to determine the covering cycle. It is an extension of the eyeballing heuristic and can be done manually too. The heuristic has performed well in our empirical study. Other extensions of the existing heuristics for dynamic lot sizing problems with constant cost parameters are also considered. Similar experiments showed clearly that the critical cut-off value heuristic is the better one.