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Chap. 4
The Wagner-Whitin algorithm obtains a!t optimum solution to the -deterministic dynamic order size problem over a finite horizon. It requires that all
period demands be satisfied, that the time periods in the planning horizon be
of a fixed determinate length, and that orders be placed to assure the arrival of
the goods at the beginning of a time period. The Wagner-Whitin algorithm is
a dynamic programming approach which can be used to determine the minimum controllable cost policy. It uses seveial theorems to simplify the computations as explained by the following three-step procedure:
183
Wagner-Whitin Algorithm
fw-l = Zvw - l
fu-1
fv - l
= Z1 u-1 + fo
The first order occurs in period 1 and is sufficient to satisfy demand in periods 1 through
u - l.
Example 2
1. Calculate the total 'Variable cost matrix for all possible ordering alterna-
tives for a time horizon consisting of N periods. The total variable cost
includes ordering and holding costs. Define ZC<! to be the total variable
cost in periods c through e of placing an order in period c which satisfies
requirements in periods c through .e:
An item has a unit purchase cost of $50, an ordering cost per order of $100, and
a holding cost fraction per period of 0.02. Determine the order quantities by the
Wagner-Whitin algorithm from the demand given below. Assume the initial
inventory is zero at the beginning of period 1.
Period
Demand
......,
~
Zc~
C + hP
l..t
(Qa - Qc;)
for
c ~ e ~ N,
75
3
33
2
0
4
28
10
i=c
The total variable cost matrix shown in Thble 4-1 is calculated as follows:
where
E Rk,
fr = Min(Zc~ + fc _ 1)
for c
Z wN
+ f w- 1
E (Qu
- Qci),
i- c
Zu
100,
+ (108 - 108)]
= 166,
= 250,
= 1, 2, . . . , e.
schedule.
3. To translate the optimum solution (jN) obtained by the algorithm to order
quantities, appiy the following:
JN
hP
k-c
Rk
c +
Qa
z=
c
1
The final order occurs at period w and is sufficient to satisfy demand in periods w through
3
4
N.
=
100
100
100
166
133
100
250
189
128
100
250
189
128
100
100
300
229
158
120
1io
100
184
Z 22
Chap. 4
100,
/ 3 = Min(Z13
= 166
= (250
Z 35 = 100
=
z4-o; =
z.s =
Z 46 =
128,
= 228
100,
Z 56
=
=
/6
158,
110,
100.
The minimum possible cost in periods 1 through e Cf~> shown in Thb1e 4-2, is
determined as follows:
f~
f o = 0,
/ 1
= Min(Z 11 + / 0 ) = (100 +
= 100
/~ =
for
for
TABLE 4-2
c
I
Z 11 + fo,
z,2
+ fo.
100
100
200
166
233
200
250
289
228
266
.250
289
228
266
328
300
329
258+286
338
328
100
100
166
21.8
228
2
3
5
6
f.
z34 + f2,
= (300
Z 35 + /
2,
+ fo, Zu + /,, Z36 + /2, Z46 + f3, Zs6 +f., Z66 + fs)
+ 0, 229 + 100, 158 + 100, 120 + 166, 110 + 228, 100 + 228)
for
z36 + /2.
Period
Demand
Order Quantity
Cumulative
Variabk Cost
1
75
75
2
0
0
3
33
71
4
28
0
5
0
0
6
10
0
100
100
238
248
258
258
0)
- 100
for
120,
100,
+ fo.
= Min(Z,6
= 258
100,
Z 55
Z 66
100 ..,. 1((71 - 33) + (71 - 61) + (71 - 61) + (71 - 71)]
Z 36
= (250
z13
fs = Min(Z,s + fo, Z2s + f,, Z3s + f2, Z,.s + f3, Zss +f... )
for
= 228
= w:-.
+J0 , Z 23
f 4 = Min(Z 14 + f 0 , Z 24 + f 1 , Z 3 + / 2, Z 44 + f 3)
Z 34
185
Wagner-Whitin Algorithm
258