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A heuristic is developed for a common production/inventory problem characterized by multiple products, stochastic seasonal demand, lost sales, and a constraint on overall production. Heuristics are needed since the calculation of optimal policies is impractical for real-world instances of this problem. The proposed heuristic is compared with those in current use as well as optimal solutions under a variety of conditions. The proposed heuristic is both near optimal and superior to existing heuristics. The heuristic deviated from optimality by an average of 1.7% in testing using dynamic programming as a benchmark. This compares favorably against linear-programming-based heuristics and practitioner heuristics, which deviated from optimality by 4.5 to 10.6%.
Acknowledgement
The authors would like to thank Candi Yano for her extraordinary efforts in assisting with this manuscript.
Notes
*All percentage differences from the MA heuristic are statistically significant at the 0.001 level.
**Two representative correlation results presented of the eight levels of correlation tested. The other six levels afforded similar results.