A study of the total inventory cost as a function of the reorder interval of some lot-sizing techniques used in material requirements planning systems

Abstract

This paper compares the total inventory costs (TIC) of five lot-sizing techniques. The add-drop heuristic (ADH) is a capacitated technique and the lot-for-lot (L4L), fixed period quantity (FPQ), least unit cost (LUC) and the silver-meal heuristic (SMH) are uncapacitated techniques. The TIC is considered as a function of the reorder interval (RI). This comparison is based on the assumption that if both capacitated and uncapacitated techniques produce identical RIs, then their TICs must also be identical (although uncapacitated techniques do not reflect this fact). Empirical results suggest that the ADH technique yields considerably better (i.e. lower) TICs when the demand levels and the number of items are low. On the other hand, these results suggest that for high demand levels, the TICs of the four popular lot-sizing techniques are close to the near optimal cost obtained by the (most time-consuming) ADH technique. Some theoretical results on the performance of uncapacitated techniques are also presented.