A practical assessment of risk-averse approaches in production lot-sizing problems

Douglas Alem, Fabricio Oliveira and Miguel Carrión Ruiz Peinado

International Journal of Production Research, 2020, vol. 58, issue 9, 2581-2603

Abstract: This paper presents an empirical assessment of four state-of-the-art risk-averse approaches to deal with the capacitated lot-sizing problem under stochastic demand. We analyse two mean-risk models based on the semideviation and on the conditional value-at-risk risk measures, and alternate first and second-order stochastic dominance approaches. The extensive computational experiments based on different instances characteristics and on a case-study suggest that CVaR exhibits a good trade-off between risk and performance, followed by the semideviation and first-order stochastic dominance approach. For all approaches, enforcing risk-aversion helps to reduce the cost-standard deviation substantially, which is usually accomplished via increasing production rates. Overall, we can say that very risk-averse decision-makers would be willing to pay an increased price to have a much less risky solution given by CVaR. In less risk-averse settings, though, semideviation and first-order stochastic dominance can be appealing alternatives to provide significantly more stable production planning costs with a marginal increase of the expected costs.

Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/00207543.2019.1620364

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