Lot Sizing Decisions in Product Recovery Management

Abstract

Inventories play a central role in operations and supply chain management, and there exist several motives for storing units instead of following a pure just-in-time strategy with zero inventories (see, for example, Silver et al., 1998). A first motive is that of transactions, i.e. the presence of setup costs, setup times, and economies of scale. This results in cycle stocks, the underlying problem of which is lot sizing. This will be addressed in this chapter. Incorporating uncertainty, the safety motive results in safety stocks, an issue that plays a central role in Chapter 8. The presence of dynamic aspects, e.g. changing prices and costs may result in speculative stocks, an issue that is addressed in Chapter 9. The presence of product returns can be incorporated by a different category of opportunity stocks (see Fleischmann and Minner, 2003). In the following, we will focus on lot sizing issues and refer to the inventory-related chapters for combined issues.