The Southern OR Group is holding a Joint Seminar with the University of Oxford, Department of Statistics. All are welcome.

Venue: 1 South Parks Road, Oxford
Thursday, 27th May, 2.15pm

Capacitated two-level lot-sizing models: NP-hard problems?
Dolores Romero Morales, Said Business School, University of Oxford

Abstract
In this talk we discuss a model integrating the production and distribution processes in a supply chain. Consider a planning horizon of T periods, a retailer who faces a nonnegative demand for a given item, and a manufacturer with production and transportation capacities. In each period production may take place at the manufacturer site. The items that are produced may be stored at the manufacturer or transported to the retailer. Items may be transported before demand occurs but never later, i.e. inventory at the retailer is allowed but backlogging is not. We assume that the production and the transportation costs are given by general concave functions, and the inventory holding costs by linear functions. This problem can be formulated as a two-level capacitated lot-sizing model. 

The classical one-level lot-sizing problem is polynomially solvable under stationary production capacities. (Note that transportation is not an option there.) Nevertheless, the complexity of the two-level capacitated lot-sizing problem under stationary production and transportation capacities is still an open issue. We have been able to find some scenarios under which the problem can be solved in polynomial time. In particular, we have found polynomial time algorithms for the cases where the transportation costs are either linear, or are concave with a fixed-charge structure. We make the additional common and reasonable assumption that the variable transportation and inventory costs are such that holding inventories at the manufacturer is more attractive than at the retailer from a variable cost perspective. This assumption can be relaxed when the transportation capacities are not binding and the transportation costs are linear. 

Simchi-Levi and Kaminsky (2003) have addressed the non-binding
transportation capacities scenario. They assume linear production
costs but the transportation cost functions can present more
complex nonlinearities under stationarity assumption. They also
show some polynomial results which together with ours illustrate
the difficulty of proving any complexity result for this two-level
problem.

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Dr SC Brailsford
School of Management
University of Southampton
Southampton S017 1BJ

Tel: +44 (0)23 8059 3567
Fax: +44 (0)23 8059 3844
e-mail: [log in to unmask]
http://www.soton.ac.uk/~scb
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