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Capacitated Dynamic Lot Sizing with Capacity Acquisition

Li, H and Meissner, J (2009) Capacitated Dynamic Lot Sizing with Capacity Acquisition. Working Paper. The Department of Management Science, Lancaster University.

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    Abstract

    One of the fundamental problems in operations management is to determine the optimal investment in capacity. Capacity investment consumes resources and the decision is often irreversible. Moreover, the available capacity level affects the action space for production and inventory planning decisions directly. In this paper, we address the joint capacitated lot sizing and capacity acquisition problem. The firm can produce goods in each of the finite periods into which the production season is partitioned. Fixed as well as variable production costs are incurred for each production batch, along with inventory carrying costs. The production per period is limited by a capacity restriction. The underlying capacity must be purchased up front for the upcoming season and remains constant over the entire season. We assume that the capacity acquisition cost is smooth and convex. For this situation, we develop a model, which combines the complexity of time-varying demand and cost functions and that of scale economies arising from dynamic lot-sizing costs with the purchase cost of capacity. We propose a heuristic algorithm that runs in polynomial time to determine a good capacity level and corresponding lot sizing plan simultaneously. Numerical experiments show that our method is a good trade-off between solution quality and running time.

    Item Type: Monograph (Working Paper)
    Uncontrolled Keywords: Supply chain management ; Lot sizing ; Capacity ; Approximation ; Heuristics
    Subjects:
    Departments: Lancaster University Management School > Management Science
    ID Code: 48988
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 22:27
    Refereed?: No
    Published?: Published
    Last Modified: 27 Jul 2012 01:19
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48988

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