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Suboptimality of equal lot sizes for finite‐horizon problems

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  • Ram Rachamadugu
  • Ranga Ramasesh

Abstract

We consider the problem of determining optimal lot sizes in continuous time for finite‐horizon problems with stationary parameters. Using the average cost criterion, earlier researchers concluded that the optimal lot sizes should be equal. Using the conceptually rigorous discounted cash flow analysis, we show that equal lot sizes are optimal only when the finite horizon is an integral multiple of the optimal reorder interval for the infinite‐horizon problem or, trivially, when the discount rate is zero. In all other cases, optimal lot sizes are either monotonically increasing or decreasing. Our characterization of the optimal policy is also useful in determining optimal lot sizes. © 1994 John Wiley & Sons, Inc.

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  • Ram Rachamadugu & Ranga Ramasesh, 1994. "Suboptimality of equal lot sizes for finite‐horizon problems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(7), pages 1019-1027, December.
    • Handle: RePEc:wly:navres:v:41:y:1994:i:7:p:1019-1027
    DOI: 10.1002/1520-6750(199412)41:73.0.CO;2-S
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    References listed on IDEAS

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    1. Ram Rachamadugu, 1988. "Error bounds for EOQ," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(5), pages 419-425, October.
    2. Benjamin Lev & Howard J. Weiss, 1990. "Inventory Models with Cost Changes," Operations Research, INFORMS, vol. 38(1), pages 53-63, February.
    3. Sam G. Taylor & Charles E. Bradley, 1985. "Optimal Ordering Strategies for Announced Price Increases," Operations Research, INFORMS, vol. 33(2), pages 312-325, April.
    4. Suresh Chand & Suresh P. Sethi & Gerhard Sorger, 1992. "Forecast Horizons in the Discounted Dynamic Lot Size Model," Management Science, INFORMS, vol. 38(7), pages 1034-1048, July.
    5. Evan L. Porteus, 1986. "Investing in new parameter values in the discounted EOQ model," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 33(1), pages 39-48, February.
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    1. Hui‐Ling Yang & Jinn‐Tsair Teng & Maw‐Sheng Chern, 2001. "Deterministic inventory lot‐size models under inflation with shortages and deterioration for fluctuating demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(2), pages 144-158, March.

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