Inventory Ratio Based Production Switching Heuristic (RPSH) for the Aggregate Production Planning Problem

Abstract

The production switching heuristic (PSH) is a viable and effective solution method for the aggregate production planning problem in industries where production is restricted to discrete levels. In most industries, the inventory turnover ratio is one of the most important measures in evaluating the appropriateness of inventory asset. This paper proposes an inventory ratio based PSH to integrate this industrial practices into the switching mechanism of the PSH. The proposed heuristic has a unique property in that the decision about changing the production rate in a period is made differently in accordance with the next period's demand forecasted. The effectiveness of the proposed heuristic is investigated with several well-known problems including the paint factory problem. The total costs of the proposed heuristic are compared with those of the linear decision rule and the linear program model as well as the PSH in quadratic and linear cost function cases. The results show that the proposed rule outperforms the PSH in most tests, especially when the demand variability is significant.