Lot sizing and lead time decisions in production/inventory systems

Ann M. Noblesse*, Robert Boute, Marc R. Lambrecht, Benny Van Houdt

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

Traditionally, lot sizing decisions in inventory management trade-off the cost of placing orders against the cost of holding inventory. However, when these lot sizes are to be produced in a finite capacity production/inventory system, the lot size has an important impact on the lead times, which in turn determine inventory levels (and costs). In this paper we study the lot sizing decision in a production/inventory setting, where lead times are determined by a queueing model that is linked endogenously to the orders placed by the inventory model. Assuming a continuous review (s, S) inventory policy, we develop a procedure to obtain the distribution of lead times and the distribution of inventory levels, when lead times are endogenously determined by the inventory model. This procedure allows to determine the optimal inventory parameters within the class of (s, S) policies that minimize the expected ordering and inventory related costs over time. We numerically show that ignoring the endogeneity of lead times may lead to inappropriate lot sizing decisions and significantly higher costs. This cost discrepancy is very outspoken if the lot size based on the economic order quantity deviates significantly from desirable production lot sizes. In these cases, the endogenous treatment of lead times is of particular importance.

Original languageEnglish (US)
Pages (from-to)351-360
Number of pages10
JournalInternational Journal of Production Economics
Volume155
DOIs
StatePublished - Sep 2014

Keywords

  • Lot sizing
  • Markov chain analysis
  • Production/inventory system

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

Fingerprint Dive into the research topics of 'Lot sizing and lead time decisions in production/inventory systems'. Together they form a unique fingerprint.

Cite this