A Heuristics Based on the Reduction Cost Concept for SFI Policy with Nonlinear Increasing Demand Pattern

Astanti, Ririn Diar and Luong, Huynh Trung A Heuristics Based on the Reduction Cost Concept for SFI Policy with Nonlinear Increasing Demand Pattern. In: Prosiding Seminar Internasional, Semester Genap 2008/2009, Asia Pasific Industrial and Engineering Management Society 9APIEMS), InstitutTeknologi Bandung (ITB) , InstitutTeknologiSepuluhNopember (ITS) Surabaya, BAdanPenyelenggaraKerjaSamaPendidikanTeknikIndustri (BKSTI) se Indonesia.

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Abstract

Traditional inventory policy EOQ has been developed in the past for constant demand pattern under infinite planning horizon. However, at the growth stage of product life cycle, demand rate for any particular products are not stable anymore but have increasing form. In that situation, thus, the use of EOQ might provide inappropriate result. In this paper, a heuristic technique based on the reduction cost concept for SFI (Shortage Followed by Inventory) policy with nonlinear increasing demand pattern under finite planning horizon is developed. In the proposed heuristic technique, first, Wang’s consecutive method (Computer and Operations Research, 29: 1819-1824, 2002) is used to determine shortage starting points. Then, the concept of reduction cost, which is defined as the difference between reduction of holding cost when shortage is allowed and the shortage cost that is incurred, is introduced and is applied to find replenishment times in each cycle. It is noted that the proposed heuristic technique is developed in such a way that demand during pre-defined planning horizon can always be fulfilled. Numerical examples is conducted to illustrate the applicability of the proposed technique and to compare the results from the proposed technique with those from other techniques developed in the past

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