An evaluation of lot-sizing heuristics for deteriorating inventory in material requirements planning systems

Abstract

In this paper, we consider the effects of deteriorating inventory on lot-sizing in material requirements planning systems. Five existing heuristics were extended to address the single-level lot-sizing problem with deteriorating inventory and evaluated via a large-scale simulation study. Three factors were taken into consideration for the simulation study, namely, rate of inventory deterioration, percentage of periods with zero demand, and setup cost. Our computational results, undertaken within a wide range of experimental conditions, indicate that one of the modified heuristics exhibits the best overall cost performance. We also provide insights in regard to the cost performance behavior of the five modified heuristics. Scope and Purpose Material requirements planning (MRP) is a computerized information system for managing dependent demand inventory and scheduling stock replenishment orders. The purpose of this study is to investigate the effect of deteriorating inventory on the lot-sizing decision in a single-level MRP system. Deteriorating inventory is defined in terms of decay, shrinkage, damage, obsolescence, or pilferage of an item, resulting in a decrease in quantity or volume over time. The comparative performance of various lot-sizing heuristics, aimed at minimizing the sum of setup, holding, and deterioration costs, is reported.