Two Lot-Sizing Algorithms for Minimizing Inventory Cost and Their Software Implementation

Abstract

Effective inventory management is crucial for businesses to balance minimizing holding costs while optimizing ordering strategies. Monthly or sporadic orders over time may lead to high ordering or holding costs, respectively. In this study, we introduce two novel algorithms designed to optimize ordering replenishment quantities, minimizing total replenishment, and holding costs over a planning horizon for both partially loaded and fully loaded trucks. The novelty of the first algorithm is that it extends the classical Wagner–Whitin approach by incorporating various additional cost elements, stock retention considerations, and warehouse capacity constraints, making it more suitable for real-world problems. The second algorithm presented in this study is a variation of the first algorithm, with its contribution being that it incorporates the requirement of several suppliers to receive order quantities that regard only fully loaded trucks. These two algorithms are implemented in Python, creating the software tool called “Inventory Cost Minimizing tool” (ICM). This tool takes relevant data inputs and outputs optimal order timing and quantities, minimizing total costs. This research offers practical and novel solutions for businesses seeking to streamline their inventory management processes and reduce overall expenses.