An efficient computational method for a stochastic dynamic lot-sizing problem under service-level constraints
We provide an efficient computational approach to solve the mixed integer programming (MIP) model developed by Tarim and Kingsman  for solving a stochastic lot-sizing problem with service level constraints under the static-dynamic uncertainty strategy. The effectiveness of the proposed method hinges on three novelties: (i) the proposed relaxation is computationally efficient and provides an optimal solution most of the time, (ii) if the relaxation produces an infeasible solution, then this solution yields a tight lower bound for the optimal cost, and (iii) it can be modified easily to obtain a feasible solution, which yields an upper bound. In case of infeasibility, the relaxation approach is implemented at each node of the search tree in a branch-and-bound procedure to efficiently search for an optimal solution. Extensive numerical tests show that our method dominates the MIP solution approach and can handle real-life size problems in trivial time.
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- Tarim, S. Armagan & Kingsman, Brian G., 2004. "The stochastic dynamic production/inventory lot-sizing problem with service-level constraints," International Journal of Production Economics, Elsevier, vol. 88(1), pages 105-119, March.
- James H. Bookbinder & Jin-Yan Tan, 1988. "Strategies for the Probabilistic Lot-Sizing Problem with Service-Level Constraints," Management Science, INFORMS, vol. 34(9), pages 1096-1108, September.
- Arthur M. Geoffrion, 1970. "Elements of Large-Scale Mathematical Programming Part I: Concepts," Management Science, INFORMS, vol. 16(11), pages 652-675, July.
- Tempelmeier, Horst, 2007. "On the stochastic uncapacitated dynamic single-item lotsizing problem with service level constraints," European Journal of Operational Research, Elsevier, vol. 181(1), pages 184-194, August.
- Tarim, S. Armagan & Smith, Barbara M., 2008. "Constraint programming for computing non-stationary (R,Â S) inventory policies," European Journal of Operational Research, Elsevier, vol. 189(3), pages 1004-1021, September.
- Vargas, Vicente, 2009. "An optimal solution for the stochastic version of the Wagner-Whitin dynamic lot-size model," European Journal of Operational Research, Elsevier, vol. 198(2), pages 447-451, October.
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