An optimal solution for the stochastic version of the Wagner–Whitin dynamic lot-size model

We present an algorithm for determining the optimal solution over the entire planning horizon for the dynamic lot-size model where demand is stochastic and non-stationary. The optimal solution to the deterministic problem is the well-known Wagner–Whitin algorithm. The present work contributes principally to knowledge building and provides a tool for researchers. One potentially useful contribution to practice is the solution to an important special case, where demand follows normal distributions. Other contributions to practice will likely flow from the development of improved heuristics and the improved basis to evaluate heuristic performance.