Production Lot Sizing with Material-Handling Cost Considerations

The determination of production lot sizes and the assignment of storage space in a warehouse for the produced items are usually treated as two separate problems, the former providing input (space needed) to the latter. In this paper, we treat the decision problems as one with the objective of minimizing total setup, inventory carrying, and warehouse material-handling costs. We treat the minimum material-handling cost as a continuous function of the lot sizes and develop an algorithm for finding locally optimal solutions of the derived optimization problem. Computational experience is provided and a special case of the problem is shown to be equivalent to a single-processor scheduling problem.