Abstract
This paper extends previous work on reducing setup cost in the dynamic lot-sizing problem with deterministic but time-varying demands. Using a marginal cost approach, a simple heuristic is developed to find the optimal production schedule for the reduced setup cost and the optimal investment in setup reduction. A numerical example is solved for the declining linear and exponential setup cost reduction functions, which respectively yield a concave and a convex total cost. Furthermore, an extensive experiment is performed to evaluate the efficiency of the heuristic, which is found to perform well in certain operational settings.
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