A procedure for production lot sizing with probabilistic dynamic demand

Numerous production-inventory systems experience significant demand variations from period to period. In many cases, actual demand is random as well. Due to the computational complexity and sensitivity of the optimal solution to the problem of selecting batch sizes, heuristic approaches are often employed. In this paper we propose a method for selecting batch sizes when demand is probabilistic with an unstructured dynamic mean. The procedure is a least period cost approach where the optimal order up to point is found for the desired cycle length.