The incapacitated lot sizing problem

Constrains

No shortage throughout the planning horizon

Parameters

Time index (t): t=1,2,,T

T:
length of the planning horizon
:
Demand occurred in period t
:
Order cost in period t
:
Unit purchase cost in period t
:
Inventory holding cost in period t

Variables

:
:

Order quantity in period t

Inventory level at the end of period t

(
Total Cost:
Holding cost

Ordering cost

Purchase cost

Example

Month (t)

1
80
4

2
64
4

600
1
520

3
56
4

456

4
50
4

400

5
45
4

350

6
35
4

305

7
5
4

270

8
0
4

265

9
70
4

265

10
65
4

195

11
60
4

130

12
70
4

70

This solution assumed that we purchase all the required demand at the beginning of the planning period, this will
minimize the ordering cost and maximize the holding cost.
Another solution is to order exactly the required demand, as follows

Lot sizing methods

1) Lot for Lot (L4L)
Month (t)

1
80
4

2
64
4

80
1
0

3
56
4

64
1
0

4
50
4

56
1
0

5
45
4

50
1
0

6
35
4

45
1
0

7
5
4

35
1
0

8
0
4

5
1
0

9
70
4

0
0
0

10
65
4

70
1
0

11
60
4

65
1
0

12
70
4

60
1
0

70
1
0

This method has high variability in ordering which creates a problem for the supplier who has to stock items in order to
adapt to the fluctuations in demand.

2) Fixed order quantity (FOQ)

For example 200 I can order in multiples of 200
Month (t)

1
80
4

2
64
4

200
1
120

3
56
4

56

4
50
4

5
45
4

200
1
150

6
35
4

105

7
5
4

70

8
0
4

65

9
70
4

10
65
4

200
1
195

65

11
60
4

130

12
70
4

70

3) Fixed order period (FOP)

For example 4 months
Month (t)

1
80
4

2
64
4

250
1
170

3
56
4

106

4
50
4

50

5
45
4

6
35
4

85
1
40

7
5
4

8
0
4

9
70
4

10
65
4

265
1
195

130

11
60
4

12
70
4

70

4) Fixed EOQ

Month (t)

1
80
4

2
64
4

347
1
267

3
56
4

203

4
50
4

147

5
45
4

97

6
35
4

52

7
5
4

17

8
0
4

12

9
70
4

10
65
4

347
1
289

12

224

11
60
4

12
70
4

164

94

To make the inventory zero at the end of T

Month (t)

1
80
4

2
64
4

335
1
255

3
56
4

191

4
50
4

135

5
45
4

85

6
35
4

40

7
5
4

8
0
4

9
70
4

10
65
4

265
1
195

130

We can easily find the correct order quantity by summing the demand till its the nearest to the EOQ

11
60
4

12
70
4

70

5) Silver-meal heuristic
It calculates fast but does not guarantee being the optimum solution.
Period

Lot size

Holding cost

1
2
3

80
64
56

80
144
200

4
5
6
7
8
9
10
11
12

50
45
35
5
0

250
295
330
335
335

70
65
60
70

70
135
195
265

Month (t)

1
80
4

2
64
4

335
1
255

Total cost
4
4.21333333
4.58666667

4
2.10666667

1.08666667
1.68666667
2.27
2.37
2.37

4
4
4
4
4

5.08666667
5.68666667
6.27
6.37
6.37

1.27166667
1.13733333
1.045
0.91
0.79625

0
0.21666667
0.61666667
1.31666667

4
4
4
4

4
4.21666667
4.61666667
5.31666667

4
2.10833333
1.53888889
1.32916667

4
50
4

135

Cost per period

4
4
4

3
56
4

191

Ordering cost

0
0.21333333

5
45
4

85

6
35
4

40

7
5
4

8
0
4

9
70
4

10
65
4

265
1
195

11
60
4

130

12
70
4

70

6) Least unit cost (LVC)

Period

Lot size
1
2
3
4
5
6
7
8
9
10
11
12

Month (t)

80
64
56
50
45
35
5
0
70
65
60
70

1
80
4

Holding cost
80
144
200
250
295
330
5
5
75
140
200
270

2
64
4

330
1
250

4
50
4

130

5
45
4

80

Total cost
4
4
4
4
4
4
4
4
4
4
4
4

1.08666667
1.68666667
2.27
0
0
0.46666667
1.11666667
1.91666667
3.08333333

3
56
4

186

Ordering cost

0
0.21333333

6
35
4

35

7
5
4

8
0
4

270
1
265

Cost per unit

4
4.21333333
4.58666667
5.08666667
5.68666667
6.27
4
4
4.46666667
5.11666667
5.91666667
7.08333333

9
70
4

265

0.05
0.02925926
0.02293333
0.02034667
0.01927684
0.019
0.8
0.8
0.05955556
0.03654762
0.02958333
0.02623457

10
65
4

195

11
60
4

130

12
70
4

70

7) Past period balancing (PPB)

Works when
8) Pe
ri
od
1
2
3
4
5
6
7
8
9
10
11
12

Month (t)

, I order when the holding cost is

Lot size

80
64
56
50
45
35
5
0
70
65
60
70

1
80
4

Holding cost

80
144
200
250
295
330
335
335
405
65
125
195

2
64
4

405
1
325

Ordering cost

0
0.21333333
0.58666667
1.08666667
1.68666667
2.27
2.37
2.37
4.23666667
0
0.2
0.66666667

3
56
4

261

ordering cost

4
50
4

205

4
4
4
4
4
4
4
4
4
4
4
4

5
45
4

155

6
35
4

110

7
5
4

75

8
0
4

70

9
70
4

70

10
65
4

11
60
4

195
1
130

12
70
4

70

Materials Requirement Planning (MRP)

Master Production schedule
(MPS)

Bills of Materials (BOMs)

MRP PROGRAM

Inventory Record

Product structure tree

Example
Level 0

Lecturer table
A000

L=1 Week

L=2 Weeks

Top board

Leg subassembly

A100

A200
L=1 Week

4 Legs

2 side bars

2 long bars

A210

A220

A230

The computer cannot understand this hierarchy, so we use this BOM list
Code
Follow a coding system
according to levels

Lead Time

Quantity