Forecast Horizons Under Demand Substitution and Production Changeovers : A Generalized Model

This paper presents a generalized model to investigate forecast horizons for a twoproduct dynamic lot-sizing model under production changeover and one-way demand substitution. Changeover costs emerge when production switches from one product to another. A high-grade product can be used to satisfy the demands for a lower-grade product but not vice versa. Using the structural properties of an optimal solution, we develop dynamic programming algorithms to solve the problem under time-invariant cost and time-variant cost conditions. We first prove the property on the lower bound of switching points, and then determine the monotonicity of the regeneration points for the two products. We next present an efficient procedure for obtaining the forecast horizon based on regeneration set for two products. Finally, useful managerial insights are obtained by using a comprehensive test bed