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Computing (R, S) policies with correlated demand
This paper considers the single-item single-stocking non-stationary
stochastic lot-sizing problem under correlated demand. By operating under a
nonstationary (R, S) policy, in which R denote the reorder period and S the
associated order-up-to-level, we introduce a mixed integer linear programming
(MILP) model which can be easily implemented by using off-theshelf optimisation
software. Our modelling strategy can tackle a wide range of time-seriesbased
demand processes, such as autoregressive (AR), moving average(MA),
autoregressive moving average(ARMA), and autoregressive with autoregressive
conditional heteroskedasticity process(AR-ARCH). In an extensive computational
study, we compare the performance of our model against the optimal policy
obtained via stochastic dynamic programming. Our results demonstrate that the
optimality gap of our approach averages 2.28% and that computational
performance is good
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