The Wagner-Whitin Model

EOQ Assumptions
1. Instantaneous production.
2. Immediate delivery.
3. Deterministic demand.
WW model relaxes this one

4. Constant demand.
5. Known fixed setup costs.
6. Single product or separable products.

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
Dt
ct
At
ht

1
2
3
4
5
6
7
8
9
10
20 50 10 50 50 10 20 40 20 30
10 10 10 10 10 10 10 10 10 10
100 100 100 100 100 100 100 100 100 100
1
1
1
1
1
1
1
1
1
1

Lot-for-Lot Solution
t
Dt
Qt
It
Setup cost
Holding cost
Total cost

1
20
20
0
100
0
100

2
50
50
0
100
0
100

3
10
10
0
100
0
100

4
50
50
0
100
0
100

5
50
50
0
100
0
100

6
10
10
0
100
0
100

7
20
20
0
100
0
100

8
40
40
0
100
0
100

9
20
20
0
100
0
100

10
30
30
0
100
0
100

Total
300
300
0
1000
0
1000

Wagner-Whitin Example (cont.)

Fixed Order Quantity Solution
t
Dt
Qt
It
Setup cost
Holding cost
Total cost

1
20
100
80
100
80
180

2
50
0
30
0
30
30

3
4
5
10 50 50
0 100 0
20 70 20
0 100 0
20 70 20
20 170 20

6
7
8
10 20 40
0 100 0
10 90 50
0 100 0
10 90 50
10 190 50

9
20
0
30
0
30
30

10 Total
30 300
0 300
0
0
0 300
0 400
0 700

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* A1 100
j1* 1

Step 2: Two choices, either j2* = 1 or j2* = 2.

A1 h1 D2 , produce in 1
*
Z1 A2 , produce in 2

Z 2* min

100 1(50) 150

min
100 100 200
150
j2* 1

Wagner-Whitin Example (cont.)

Step3: Three choices, j3* = 1, 2, 3.
A1 h1 D2 (h1 h2 ) D3 , produce in 1

Z 3* min Z1* A2 h2 D3 ,
produce in 2
Z*2 A3 ,
produce in 3
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 h1 D2 (h1 h2 ) D3 (h1 h2 h3 ) D4 , produce in 1
Z* A h D ( h h ) D ,
produce in 2
1
2
2 3
2
3
4

Z 4* min

*
Z
2 A3 h3 D4 ,
Z*3 A4 ,

produce in 3
produce in 4

100 1(50) (1 1)10 (1 1 1)50 320

100 100 (1)10 (1 1)50
310

min

150 100 (1)50

170 100

270
j4* 4

300
270

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.
Z 3* A4 h4 D5 , produce in 4

Z min
*
5

*
produce in 5
Z 4 A5 ,
170 100 1(50) 320

min

270 100

320
j5* 4

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

And so on.

370

Wagner-Whitin Example Solution

Last Period
with Production
1
2
3
4
5
6
7
8
9
10
Zt
jt

Planning Horizon (t)

1
2
3
4
5
6
7
8
100 150 170 320
200 210 310
250 300
270 320 340 400 560
370 380 420 540
420 440 520
440 480
500

100 150 170 270 320 340 400 480

1

Produce in period 1
for 1, 2, 3 (20 + 50 +
10 = 80 units)

10

520
520
580
520

610
580
610
620
580

7 or 8

Produce in period 4
Produce in period 8
for 4, 5, 6, 7 (50 + 50 + for 8, 9, 10 (40 + 20 +
10 + 20 = 130 units)
30 = 90 units

Wagner-Whitin Example Solution (cont.)

Optimal Policy:

Produce in period 8 for 8, 9, 10 (40 + 20 + 30 = 90 units)

Produce in period 4 for 4, 5, 6, 7 (50 + 50 + 10 + 20 =
130 units)
Produce in period 1 for 1, 2, 3 (20 + 50 + 10 = 80 units)

Note: we produce in 7 for an 8 period problem, but this never

comes into play in optimal solution.

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)

Inventory vs Time in (Q,r) Model

Inventory

Q
r

l
Time