Use the Wagner-Whitin algorithm to find all optimal production policies for the

Question

Use the Wagner-Whitin algorithm to find all optimal production policies for the following problem: A company's demand for a product for the next 4 months is: 1. Month 1 2 4 Demand1 3 2 4 At the beginning of each month the company decides how many units to produce. During a month in which any units are produced there is a setup cost of $3. In addition, there is a variable cost of $1 per unit produced. At the end of each month there is a holding cost of $0.5 per unit. Manufacturing capacity limits production to 5 units per month, and space limits inventory to 4 units. Determine the optimal production schedule.

Explanation / Answer

First, acknowledge that the variable cost is irrelevant because it will anyway be incurred by producing parts at any period i.e. irrespective of the lot sizing rule selected. Also, consider an assumption that inventory is not counted in the month of production.

Wagner Whitin algorithm

1-period planning horizon

2-period planning horizon

3-period planning horizon

4-period planning horizon

So the optimal production schedule is -

Period 1: 1
Period 2: 5
Period 3: 0
Period 4: 4

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