The part‐period balancing algorithm and its look ahead‐look back feature: A theoretical and experimental analysis of a single stage lot‐sizing procedure

Abstract

Abstract This paper investigates the discrete Part‐Period Balancing (PPB) lot‐sizing algorithm and its optional feature, the Look Ahead‐Look Back tests. PPB is the most commonly used dynamic lot‐sizing procedure in practice and it has also been tested extensively in simulation experiments. Although its overall cost performance, relative to other heuristics, have been fairly good, a fundamental flaw with the model has been noted in the literature. This deficiency leads to poor performance under certain conditions. In this paper a simple adjustment to the main algorithm is analytically derived under the assumptions of a constant demand rate and an infinite planning horizon. The adjustment leads to an optimal behavior for the PPB heuristic under the stated conditions. Subsequent experimental analysis through simulation of lot‐sizing performance in environments with time‐varying, discrete demand shows that the proposed adjustment leads to significant cost reductions. This paper also analyzes the Look Ahead‐Look Back tests which is the distinguishing feature between the PPB procedure and the Least Total Cost algorithm. The tests were devised to improve the cost performance of the PPB heuristic by marginally adjusting each tentative lot‐size. The effect of the Look Ahead‐Look Back tests have, however, never been verified in the literature. The tests have undergone some changes over time, when they have been included in commercial software packages for inventory management. We suggest yet another modified version in this paper. In the last portion of the paper, the cost effectiveness of the Look Ahead‐Look Back tests is confirmed through simulation. That is, when used together with the original PPB procedure, they lead to an improved cost performance. It is also shown that a combination of these tests and the adjustment to the PPB procedure mentioned earlier leads to an even lower average total cost. All cost improvements are statistically significant. It is finally noted that the Look Ahead‐Look Back tests perform poorly in certain constant demand situations. Additional analytic and experimental analysis shows that these results stem from a dominance of the Look Back test over the Look Ahead test, leading to the former test being performed more often. This can easily be corrected, however, by checking for sufficient variability in the data before the Look Back test is employed.

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