Resource allocation with lumpy demand: To speed or not to speed?

Bintong Chen and Charles L. Munson

Naval Research Logistics (NRL), 2004, vol. 51, issue 3, 363-385

Abstract: In the classical EPQ model with continuous and constant demand, holding and setup costs are minimized when the production rate is no larger than the demand rate. However, the situation may change when demand is lumpy. We consider a firm that produces multiple products, each having a unique lumpy demand pattern. The decision involves determining both the lot size for each product and the allocation of resources for production rate improvements among the products. We find that each product's optimal production policy will take on only one of two forms: either continuous production or lot‐for‐lot production. The problem is then formulated as a nonlinear nonsmooth knapsack problem among products determined to be candidates for resource allocation. A heuristic procedure is developed to determine allocation amounts. The procedure decomposes the problem into a mixed integer program and a nonlinear convex resource allocation problem. Numerical tests suggest that the heuristic performs very well on average compared to the optimal solution. Both the model and the heuristic procedure can be extended to allow the company to simultaneously alter both the production rates and the incoming demand lot sizes through quantity discounts. Extensions can also be made to address the case where a single investment increases the production rate of multiple products. © 2004 Wiley Periodicals, Inc. Naval Research Logistics, 2004.

Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/nav.10121

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:51:y:2004:i:3:p:363-385

Access Statistics for this article

More articles in Naval Research Logistics (NRL) from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().