Multi-Period Lot-Sizing with Stationary Demand : Extension to Forecast Horizons

The models we present in this chapter are related to two classical inventory models: The EOQ model of Harris (1913) and the dynamic lot size model of Wagner and Whitin (1958). In relation to the EOQ model, our models depart in three different ways: (1) the EOQ model assumes that the problem horizon is infinite whereas we consider both finite and infinite horizon models, (2) the EOQ model assumes that inventory is continuously monitored and an order to replenish the inventory can be placed at any time, but our models assume that the problem horizon is divided into discrete time periods and an order can be placed only at the beginning of a period, and (3) the EOQ model assumes stationary demand over an infinite horizon, whereas we assume stationary demand in the initial few periods and allow it to be time varying in the subsequent periods. It is assumed that the demand in a period occurs continuously at a constant rate and must be filled immediately; it means, shortages are not allowed. The cost parameters for procurement and inventory holding are assumed to remain constant over the problem horizon. For precise assumptions and a rigorous treatment of the EOQ model viewed as an average cost infinite horizon problem, see Beyer and Sethi (1998)