Measuring the performance of lot-sizing techniques in uncertain environments

Cost-effectiveness and computational time are the traditional criteria for evaluating lot-sizing techniques. However, in evolving environments, frequent revisions of demand forecasts may induce various degrees of instability in planned orders, depending on the selected lot-sizing technique. In poorly flexible production systems, the cost of implementing these alterations may overcome the benefits from using a cost-efficient technique. In this paper, we evaluate lot-sizing techniques on the basis of two criteria. The first is the traditional cost-effectiveness criterion. The second, that we call robustness, is designed to capture some of the characteristic features of decision-making in uncertain environments. Robustness is related to the stability of the set-up streams when demand fluctuates. We propose and discuss several alternative measures of robustness. The simulation results clearly show an inverse relationship between cost-effectiveness and instability. Therefore, managers should take into account these two ‘opposite’ dimensions in their decision process, under quite unforeseeable environments.