Dynamic demand lot-sizing rules for incremental quantity discounts

Numerous studies have developed and compared lot-sizing procedures for finite-horizon dynamic demand, material requirements planning (MRP), environments when either no purchase discounts exist or for the case of all-units quantity discounts. This paper examines lot-sizing rules when product price schedules follow incremental quantity discounts. The optimal (non-discount) procedure and some traditional heuristic procedures are modified to incorporate incremental quantity discounts. We further modify two heuristics with a ‘look-ahead enhancement’ that performs very well under experimentation. Numerical tests revealed the overall best-performing heuristic in this study to be a modified ‘least-unit cost’ method with a look-ahead enhancement. That procedure produced an average cost penalty vs optimal of 0.26%.