Fix‐and‐optimize heuristics for capacitated lot‐sizing with sequence‐dependent setups and substitutions

In this paper, we consider a capacitated single‐level dynamic lot‐sizing problem with sequence‐dependent setup costs and times that includes product substitution options. The model is motivated from a real‐world production planning problem of a manufacturer of plastic sheets used as an interlayer in car windshields. We develop a mixed‐integer programming (MIP) formulation of the problem and devise MIP‐based Relax&Fix and Fix&Optimize heuristics. Unlike existing literature, we combine Fix&Optimize with a time decomposition. Also, we develop a specialized substitute decomposition and devise a computation budget allocation scheme for ensuring a uniform, efficient usage of computation time by decompositions and their subproblems. Computational experiments were performed on generated instances whose structure follows that of the considered practical application and which have rather tight production capacities. We found that a Fix&Optimize algorithm with an overlapping time decomposition yielded the best solutions. It outperformed the state‐of‐the‐art approach Relax&Fix and all other tested algorithm variants on the considered class of instances, and returned feasible solutions with neither overtime nor backlogging for all instances. It returned solutions that were on average only 5% worse than those returned by a standard MIP solver after 4hours and 19% better than those of Relax&Fix.