A Note on Ending Inventory Valuation in Multiperiod Production Scheduling

ERIM Report Series Reference No. ERS-2002-63-LIS

Tinbergen Institute Discussion Paper No. 2002-067/4

15 Pages Posted: 26 Jul 2002

See all articles by Wilco van den Heuvel

Wilco van den Heuvel

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Albert P. M. Wagelmans

Erasmus University Rotterdam (EUR) - Erasmus Center for Optimization in Public Transport (ECOPT); Erasmus University Rotterdam (EUR) - Department of Econometrics

Date Written: June 2002

Abstract

In a recent paper, Fisher et al. (2001) present a method tomitigate end-effects in lot sizing by including a valuation term for end-of-horizon inventory in the objective function of the short-horizon model. Computational tests show that the proposed method outperforms the Wagner-Whitin algorithm and the Silver-Meal heuristic, under several demand patterns, within a rolling horizon framework. We replicate the computational tests also including a straightforward method that assumes the same knowledge about future demand as the ending inventory valuation method. Our results indicate that the superior performance reported by Fisher et al. is to a large extent due to the fact that their method assumes that quite accurate knowledge about future demand is available, whereas the traditional methods do not use any information about demand beyond the short model horizon. Moreover, when quite accurate knowledge about future demand is indeed available, our results suggest that for some demand patterns, ending inventory valuation is not the most effective way to use this knowledge. Furthermore, we point out a minor mistake in the results reported by Fisher et al.

Keywords: End Effects, Dynamic Lot Sizing, Ending Inventory Valuation

JEL Classification: C61, M, M11, R4, C52

Suggested Citation

van den Heuvel, Wilco and Wagelmans, Albert P. M., A Note on Ending Inventory Valuation in Multiperiod Production Scheduling (June 2002). ERIM Report Series Reference No. ERS-2002-63-LIS. Available at SSRN: https://ssrn.com/abstract=318259 or http://dx.doi.org/10.2139/ssrn.318259

Wilco Van den Heuvel

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 40 81307 (Phone)

Albert P. M. Wagelmans (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus Center for Optimization in Public Transport (ECOPT) ( email )

3000 DR Rotterdam
Netherlands
+31 10 408 2576 (Phone)
+31 10 408 9162 (Fax)

Erasmus University Rotterdam (EUR) - Department of Econometrics

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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