Two-stage stochastic lot-sizing problem under cost uncertainty

Zhili Zhou () and Yongpei Guan ()

Annals of Operations Research, 2013, vol. 209, issue 1, 207-230

Abstract: For production planning problems, cost parameters can be uncertain due to marketing activities and interest rate fluctuation. In this paper, we consider a single-item two-stage stochastic lot-sizing problem under cost parameter uncertainty. Assuming cost parameters will increase or decrease after time period p each with certain probability, we minimize the total expected cost for a finite horizon problem. We develop an extended linear programming formulation in a higher dimensional space that can provide integral solutions by showing that its constraint matrix is totally unimodular. We also project this extended formulation to a lower dimensional space and obtain a corresponding extended formulation in the lower dimensional space. Final computational experiments demonstrate that the extended formulation is more efficient and performs more stable than the two-stage stochastic mixed-integer programming formulation. Copyright Springer Science+Business Media New York 2013

Keywords: Polyhedral combinatorics; Integer programming; Lot-sizing; Stochastic programming (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s10479-013-1333-4

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