Vendor-Buyer Lot Sizing Problem With Stochastic Demand: an Exact Procedure Under Service Level Approach

Abstract

In this study, we consider the joint economic lot sizing problem (JELP) under stochastic demand. Almost all of the literature on JELP assumes that the demand is deterministic and constant with very limited exceptions. We indicate the shortcomings of the work in the literature in this regard, and suggest a service-level based model for JELP under stochastic demand with an exact solution procedure. We also include numerical examples to illustrate the procedure and the value of the stochastic solution. [Submitted 02 September 2009; Revised 20 December 2009, 25 February 2009; Accepted 26 February 2010]