Economic order quantities and variations in production load

Abstract

When production orders are initiated by an inventory control system the production load daring a given time period can be looked upon as a random variable. When order quantities are large the variations in production load can be a severe problem. One way to smooth the variations in the load is to use smaller order quantities than those given by traditional lot sizing techniques. This is in practice done with the aid of simple rules of thumb. In this paper we describe a model for determining order quantities when the cost of a varying production load is recognized. The required production capacity is defined by a small given probability for overload during the time period regarded.