An Appraisal of the Empirical Performance of the Linear Decision Rule for Aggregate Planning

Leroy B. Schwarz and Robert E. Johnson
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Leroy B. Schwarz: Purdue University
Robert E. Johnson: Purdue University

Management Science, 1978, vol. 24, issue 8, 844-849

Abstract: More than twenty years after the publication of the Linear Decision Rule (LDR) of Holt, Modigliani, Muth, and Simon (HMMS), the LDR remains an implementation failure. No company is reported to be using it. This paper hypothesizes that the reason for this failure may be a very simple one: the incremental benefit of aggregate planning (i.e., the coordinated optimization of aggregate work force, production, and inventory) over improved aggregate inventory management alone may be quite small. To demonstrate our hypothesis we reexamine the original paint company cost comparisons presented by HMMS, and show that virtually all of the LDR's reported saving over paint company management could have been obtained with a one time adjustment in management's aggregate buffer inventory level. We conclude that although the LDR might provide significantly larger savings than improved aggregate inventory management alone, published empirical results fail to demonstrate that potential. The implications of our hypothesis and conclusions are discussed.

Date: 1978
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