Extensions of the Planning Horizon Theorem in the Dynamic Lot Size Model

Abstract

This paper considers an N period production planning problem in which a sequence of known demands d1, d2,…, dN must be satisfied. The cost of production in period t consists of a setup cost Kt plus a marginal cost per unit ct. The cost of carrying a unit of inventory into period t is ht − 1. An optimal policy is a production plan that satisfies demand at minimum cost. The main results of the paper are a theorem that decreases the computational effort required to find optimal policies and a theorem that establishes the existence of planning horizons. The results of these two theorems are combined in a forward algorithm for the efficient solution of the problem.

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