The Wagner-Whitin Model

Dynamic Lot Sizing Notation

t a period (e.g., day, week, month); we will consider t = 1, … ,T,

where T represents the planning horizon.

Dt demand in period t (in units)

ct unit production cost (in dollars per unit), not counting setup or
inventory costs in period t

At fixed or setup cost (in dollars) to place an order in period t

ht holding cost (in dollars) to carry a unit of inventory from

period t to period t +1
decision variables
Qt the unknown size of the order or lot size in period t
 Wagner-Whitin Example

• Data
t 1 2 3 4 5 6 7 8 91 0
Dt 2
05 01050501020402030
c
t 1
01 01010101010101010
At 1
001
001
001
001
001
001
001
001
001
00
h
t 1 1 1 1 1 1 1 1 1 1

• Lot-for-Lot Solution
t 1 2 3 4 5 6 7 8 9 10T
ot
al
Dt 2050105050102040203030
0
Qt 2050105050102040203030
0
I
t 0 0 0 0 0 0 0 0 0 0 0
Setu
p co
st 1
001
001
001
001
001
001
001
001
001
001
000
Holdin
g c
ost 0 0 0 0 0 0 0 0 0 0 0
Totalco
st 1
001
001
001
001
001
001
001
001
001
001
000
 Wagner-Whitin Example (cont.)

• Fixed Order Quantity Solution

t 1 2 3 4 5 6 7 8 9 1
0Tot
al
Dt 205
01050501020402030300
Qt 1
000 010
00 01 0
00 0 0 300
I
t 803
020702010905030 0 0
Setu
p co
st 1
000 010
00 01 0
00 0 0 300
Holdin
gcost 803
020702010905030 0 4
00
Totalc
ost 1
803
02017
0201019
05030 0 7
00
 Wagner-Whitin Property

•Under an optimal lot-sizing policy either the inventory carried to

period t+1 from a previous period will be zero or the production
quantity in period t+1 will be zero.
 Basic Idea of Wagner-Whitin Algorithm

•By WW Property I, either Qt=0 or Qt=Dt+…+Dk for some k. If

• jk* = last period of production in a k period problem

•then we will produce exactly Dk+…DT in period jk*.

•We can then consider periods 1, … , jk*-1 as if they are an independent

jk*-1 period problem.
 Wagner-Whitin Example

• Step 1: Obviously, just satisfy D1 (note we are neglecting production

cost, since it is fixed).
Z1* A
1100
j1* 1
• Step 2: Two choices, either j2* = 1 or j2* = 2.

 A  h D , producein1
Z2*  min *1 1 2
Z1  A2, producein 2
1001(50) 150
 min
100100 200
150

j2* 1
 Wagner-Whitin Example (cont.)

• Step3: Three choices, j3* = 1, 2, 3.

A1 h1D2 (h1 h2)D3, produce

in1

Z3* min
Z1 A2 h2D3,
*
produce
in2

 2 A3,
Z*
produce
in3
100 1(50
)(11)10170

min
100 100(1)10 210

150 100 250
170

j3* 1
 Wagner-Whitin Example (cont.)

• Step 4: Four choices, j4* = 1, 2, 3, 4.

A1 h1D2 (h1 h2)D3 (h1 h2 h3)D4, produce
in1
Z* A h D (h h )D,
1 2 2 3 produce
in2
Z4 min
*
 *
2 3 4

Z2 A3 h3D4, produce

in3

Z3 A4,
*
produce
in4
1(50
100 )(11)10(111)50320
100
 100 (1)10(11)50 310
min

100
150 (1)50 300
 100
170 270
270

j4* 4
 Planning Horizon Property

•If jt*=t, then the last period in which production occurs in an optimal
t+1 period policy must be in the set t, t+1,…t+1.

•In the Example:

–We produce in period 4 for period 4 of a 4 period

problem.
–We would never produce in period 3 for period 5 in a 5
period problem.
 Wagner-Whitin Example (cont.)

• Step 5: Only two choices, j5* = 4, 5.

Z3* A4 h4D5, produce
in4
Z min
*
 *
Z4 A5,
5
produce
in5
170 100 1(50) 320
min

270 100 370
320

j5* 4
• Step 6: Three choices, j6* = 4, 5, 6.

And so on.
 Wagner-Whitin Example Solution

Last Period PlanningHorizon(t)

withProduction 1 2 3 4 5 6 7 8 9 10
1 100 150 170 320
2 200 210 310
3 250 300
4 270 320 340 400 560
5 370 380 420 540
6 420 440 520
7 440 480 520 610
8 500 520 580
9 580 610
10 620
Zt 100 150 170 270 320 340 400 480 520 580
jt 1 1 1 4 4 4 4 7 7or 8 8
Produce in period 1 Produce in period 4 Produce in period 8
for 1, 2, 3 (20 + 50 + for 4, 5, 6, 7 (50 + 50 + for 8, 9, 10 (40 + 20 +
10 = 80 units) 10 + 20 = 130 units) 30 = 90 units
 Problems with Wagner-Whitin

• 1. Fixed setup costs.

• 2. Deterministic demand and production (no uncertainty)

• 3. Never produce when there is inventory (WW Property I).

–safety stock (don't let inventory fall to zero)
–random yields (can't produce for exact no. periods)