A Note on Ending Inventory Valuation in Multiperiod Production Scheduling

Wilco van den Heuvel and Albert Wagelmans

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: In a recent paper, Fisher et al. (2001) present a method to mitigate end-effects in lot sizing byincluding a valuation term for end-of-horizon inventory in the objective function of the short-horizon model. Computational tests show that the proposed method outperforms the Wagner-Whitin algorithm and the Silver-Meal heuristic, under several demand patterns, within arolling horizon framework. We replicate the computational tests also including a straightforward method that assumes the same knowledge about future demand as the ending inventory valuation method. Our results indicate that the superior performance reported by Fisher et al. is to a large extent due to the fact that their method assumes that quite accurate knowledge about future demand is available, whereas the traditional methods do not use any information about demand beyond the short model horizon. Moreover, when quite accurate knowledge about future demand is indeed available, our results suggest that for some demand patterns, ending inventory valuation is not the most effective way to use this knowledge. Furthermore, we point out a minor mistake in the results reported by Fisher et al.

Keywords: dynamic lot sizing; end effects; ending inventory valuation (search for similar items in EconPapers)
JEL-codes: C52 C61 M M11 R4 (search for similar items in EconPapers)
Date: 2002-07-09
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