Dynamic Lot Sizing with Demand Selection and the Pricing Analog

Abstract

This chapter defines a model for production planning for a single product in a periodic setting, where the planner must select from a number of individual orders for the product. Associated with any order are a demand quantity, delivery period, and revenue. Acceptance of an order implies that it must be met on time and in full. Orders are placed in advance of the planning horizon, and the planner must determine which orders to accept as well as a production plan for meeting these orders on time over a finite horizon. Production in any period carries a fixed order cost as well as variable production costs, and inventory may be held from period to period, incurring an associated holding cost. The planner’s goal is to maximize profit from order acceptance decisions over the planning horizon.