Lot-sizing heuristics for continuous time-varying demand and shortages

In this paper we propose two heuristic procedures for the inventory lot-sizing problem with continuous time-varying demands and shortages. The first heuristic is an extension of the Silver-Meal solution method to general continuous demands. The key idea of the second heuristic is to balance the sum of the holding and backorder costs over each replenishment cycle with the ordering cost. In the case of linearly time-varying demand, the two heuristics procedures are evaluated according to three measures of cost performance and two measures of computation efficiency over 10000 test problems. The results revealed that the modified least-cost approach is generally more effective than the generalized Silver-Meal. It generated comparable cost performance in problems with shortages and a superior cost advantage in problems with infinite shortage cost. Moreover, both heuristics are faster than the exact procedure in execution.