A Heuristic for Multiple Lot Sizing For an Order Under Variable Yield

Consider a job shop which must completely fill a large make-to-order demand of a product where production yield is highly variable. After a production lot is completed, if the total output of satisfactory units is inadequate to satisfy the demand, then a new run (with associated setup cost) is made. When the output of good units exceeds the demand, then the excess units are scrapped (with possible salvage value). The optimal lot size minimizes the total of production, setup, holding, shortage, and scrap costs. A heuristic is developed based on the incremental cost of increasing the lot size by one unit. The computational ease and excellent cost performance of the heuristic favor its use in place of the mathematically optimal solution obtained by dynamic programming. Real world manufacturing applications and additional properties of the model are also discussed.