Heuristic and optimal approaches to lot-sizing incorporating backorders: An empirical evaluation

This paper introduces an easy alternative to the Wagner-Whitin backorder algorithm. The algorithm is described and illustrated with an example. Its performance is compared with several of the traditional lot-sizing rules (lot for lot, economic order quantity, period order quantity, least unit cost, least total cost, part period algorithm, Silver-Meal algorithm and Wagner-Whitin algorithm) as well as the backorder versions of Wagner-Whitin and economic order quantity. This comparison is conducted using four different demand streams and 25 combinations of carrying, ordering and shortage costs. An aggregate performance index has been defined to compare lot-sizing rules. It is concluded that this new algorithm is sufficiently robust and relatively easy to apply. Results of experiments conducted highlight the more general nature of the backordering algorithms. By choosing the right combination of costs, backordering can be suppressed and traditional lot-sizing behaviour can be imitated.