Applied Mathematical Modelling 84 (2020) 1–18

Contents lists available at ScienceDirect

Applied Mathematical Modelling

journal homepage: www.elsevier.com/locate/apm

Design of mathematical models for the integration of

purchase and production lot-sizing and scheduling problems
under demand uncertainty
Milad Mohammadi, Majid Esmaelian∗, Arezoo Atighehchian
Department of Management, University of Isfahan, Hezarjerib St., Azadi Square, Isfahan, Iran

a r t i c l e i n f o a b s t r a c t

Article history: This study addresses the multi-level lot-sizing and scheduling problem with complex se-
Received 8 February 2019 tups and considers supplier selection with quantity discounts and multiple modes of
Revised 15 January 2020
transportation. The present research proposes a mixed-integer linear programming (MILP)
Accepted 11 March 2020
model in which the purchase lot-sizing from multiple suppliers, production lot-sizing with
Available online 19 March 2020
multiple machines and scheduling of various products of different families are accom-
Keywords: plished at the same time. However, these decisions are not integrated in traditional en-
Stochastic lot-sizing vironments and are taken separately. In this study, two different types of lot-sizing models
Demand choice flexibility called aggregated and disaggregated are developed for the problem to evaluate and com-
Supplier selection pare the computational efficiency of them under deterministic and stochastic demands
All-unit discount structure and provide some managerial insights. To deal with the stochastic demands, Chance-
Mathematical programming Constrained Programming (CCP) approach is applied. Based on the results of this study,
the average profit of the separated (purchase from production) lot-sizing model under de-
mand choice flexibility and stochastic demand is 24% and 22% less than the integrated
model, respectively. Moreover, the results also confirm the effect of discount structure on
the amount of purchases, productions, revenues and costs.
© 2020 Elsevier Inc. All rights reserved.

1. Introduction

The problem of integrated production planning and scheduling is one of the most important issues in the field of pro-
duction planning. Scheduling and production planning are categorized into two different levels of decision making. The
decision-making for these two levels is usually done hierarchically in such a way that the result of the lot-sizing problem
is applied for scheduling model [1]. Due to the relation between these levels, the planning decisions need to be taken si-
multaneously to obtain the global optimal solutions. Lot-sizing and scheduling problem is usually in the production systems
with complex setups and limited capacities. The sequence-dependent setups make the lot-sizing and scheduling decisions
to be taken at the same time, because a hierarchical decision-making manner and capacity shortage may lead to infeasible
solutions. There is the sequence-dependent setup in producing some kinds of products and production switching between
different products (major setups) leads to more setup than the switching between similar products (minor setups) [2].
Lot-sizing and scheduling formulations are classified in small and big bucket models [3]. In big bucket formulations
like the models proposed in this research, setups for several products can be occurred in each period, while in the small

∗
Corresponding author.
E-mail addresses: m.mohammadi@ase.ui.ac.ir (M. Mohammadi), m.esmaelian@ase.ui.ac.ir (M. Esmaelian), a.atighehchian@ase.ui.ac.ir (A. Atighehchian).

https://doi.org/10.1016/j.apm.2020.03.021
0307-904X/© 2020 Elsevier Inc. All rights reserved.
2 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

bucket formulations, at most one setup is possible in a specific period. In small bucket formulations, first, the planning
horizon is divided into small periods, then the modeling process is done. This approach increases the complexity of the
model considerably and can be applied only for problems of small size [4]. In big bucket formulations with sequence-
dependent setups, changeover variables are needed to regard the successive precedence in each period. Thus, a precedence-
based approach is the foundation of big bucket formulations to handle sequence-dependent setups [5]. In addition to the
integration of lot-sizing and scheduling problems, lot-sizing and raw material purchasing decisions should be taken in an
integrated way to achieve global optimum solutions [6].
In traditional production systems, large orders often lead to a reduction in purchasing and production costs, especially
if the setup cost is high, but on the other hand, large orders result in higher holding costs. Therefore, suppliers normally
reimburse customers for this added holding cost by offering encouraging discounts to convince them to increase their order
size [7]. The decisions of production planning are practically taken before the raw material purchasing decisions in a succes-
sive way (not simultaneously) and thus decreases the power of exploiting suppliers’ discounts [8]. Despite the importance
of this problem, only a few academic studies have been done to develop it. By defining the problem in an integrated model,
the production planners will be able to use discounts from suppliers and reduce the total cost of materials purchasing.
Material Requirement Planning (MRP) covers purchasing lot-sizing decisions in such cases which demands for products
are static and lumpy in a specific time horizon. When demand is static and given over a horizon, the simple static Economic
Order Quantity (EOQ) model can also be applied to achieve the optimal solution. Neither of these two models takes into
account the actual constraints such as supplier capacity and demand dependent fluctuations in the model’s parameters. Dy-
namic Programming (DP) methods can solve the problem and obtain the exact solution in more general cases. Nevertheless,
it is difficult to understand these methods and they also use a lot of computing resources [9]. To the best knowledge of the
authors, in the literature of purchasing lot-sizing problem, there is no integrated multi-level model that can supersede DP
and EOQ methods (to avoid their weaknesses), consider supplier selection with different discount levels and also support
MRP to maximize the total profits.
In most models of lot-sizing and scheduling problem, the objective function of the model is to minimize the production
costs. In a company whose objective is to maximize profits, choosing the proper amount of demand (to be provided) is an
important step in managing demands [10]. In this paper demand choice flexibility approach is applied for maximizing the
total profit. The amount of demand accepted in each period as one of the variables of the model can alter between the
lower and upper limits. The lower limit of demand for products can be the company’s commitments to its customers or the
lowest amount of planned production and the upper limit can be achieved through prediction. Demand choice flexibility
can result in better decision-making especially if the demanded products are various or when the planner cannot predict
the exact amount of demands. In such a situation, determining the lower and upper limits for demands is a more reliable
action. This policy can be adopted by wholesalers [10].
Besides, the problem under study is formulated under stochastic demands by one of the stochastic programming meth-
ods. These methods are usually used whenever the major source of uncertainty in the data is randomness. In these situa-
tions, random parameters are determined by known probability distributions which are estimated according to the sufficient
historical data [11]. In this research, chance-constrained programming (CCP) was selected as an approach, because it belongs
to the principal approaches for dealing with random parameters in optimization problems (such as lot-sizing problems)
that planners tend to set a level of confidence in the optimization model to consider the possibility of having an uncertain
parameter and constraint in good condition.
This paper integrates the purchase and production lot-sizing and scheduling problems. The problem is modeled using
aggregated and disaggregated formulations under demand choice flexibility and stochastic programming approaches. Disag-
gregated models are a reformulation of aggregated models. The basic idea of the disaggregated mode is to disaggregate the
variables of production lot-sizing by connecting each production lot to the period in which it is needed. While in the ag-
gregated mode, productions of the present period and inventories of the previous period are used to satisfy the demands of
the present period, and the surplus amount of them is held at the end of this period. Therefore, in this mode, only between
adjacent periods is there a relationship. Regarding the existence of aggregated and disaggregated formulations in the litera-
ture [10], the integration of purchase and production lot-sizing problems, as the main contribution of the present research,
is done for both aggregated and disaggregated formulations. Finally, they are compared under deterministic and stochas-
tic demands and some managerial insights are provided. Therefore, the researchers of these two modeling approaches can
apply the models developed in this study in accordance with their problem, separately.
The rest of this paper is organized as follows. A literature review related to the purchase and production lot-sizing
and scheduling problem is provided in Section 2. Section 3 presents the problem under study. The integrated mathemat-
ical models are introduced in Section 4. The computational experiments and results are discussed in Section 5. Finally,
Section 6 presents concluding remarks and future research directions.

2. Literature review

Many articles have been published on purchase lot-sizing, but a few papers have addressed quantity discounts. Moreover,
most of them consider static demand. Rezaei et al. [12] examined the purchase planning with different discount levels and
limited warehouse size to fulfill the demands of assembly lines. Buschkühl et al. [13] worked on the capacitated dynamic
lot-sizing problem in a review paper. They investigated the Multi-Level Capacitated Lot-Sizing Problem (MLCLSP) which is
 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 3

a big bucket formulation. MLCLSP arises if several stages of a production system with limited capacity need to be planned.
Mohammadi et al. [14] presented a model for an MLCLSP with sequence-dependent setups and Almada-Lobo et al. [2] stud-
ied sequence-dependent setup costs in the structured capacitated lot-sizing and scheduling problem which is a big bucket
formulation. Liu et al. [15] formulated the problem of lot-sizing and scheduling with precedence-based variables according
to the sub-tours elimination constraints of the traveling salesman problem (TSP). Kopanos et al. [16] formulated a model
in which minor setups of products in the same family, major setups (sequence-dependent) between products in different
families, and setup carry-over between adjoining periods.
The integrated lot-sizing and scheduling model is applied in several industries such as animal food plants [17], soft drink
productions [18,19] steel casting factories [20]. A comprehensive review paper on integrated lot-sizing and scheduling prob-
lems is presented by Copil et al. [21]. Previous studies show that the expanded models of integrating production planning
decisions are needed to improve the performance of supply chains because there are some interactions between these deci-
sions. Another finding is that a few studies deal with the multiple production lines (machines) under sequence-dependent
setups. The problem considered in this study is in line with this field.
The objective function of production planning models usually minimizes all costs and the sale revenues are fixed. De-
mand choice flexibility transforms this objective function into maximizing sale revenues minus the costs. Haugen et al.
[22] formulated the capacitated lot-sizing problem with profit maximization in which demands for products are a function
of price, and the price is regarded as a variable in the model. Shen [23] worked on the flexibility in choosing the demands
and the profit maximization objective function. Sereshti and Bijari [10] developed two mathematical models called aggre-
gated and disaggregated for the integrated lot-sizing and scheduling problem considering demand choice flexibility. They
evaluated the efficiency of two models in various problem sets. Their models are similar to the models proposed in this
study in some aspects, but they only consider production lot-sizing. The purchase lot-sizing, supplier selection with the
quantity discount and multiple modes of transportation and multiple production lines with complex setups that exist in
real-life environments are neglected in their study.
Most of the studies in the field of lot-sizing and scheduling problem are deterministic models. These models may not
have good results if the average or worst case is substituted for uncertain parameters. To the best knowledge of the authors,
all previous works with uncertain parameters are related to the single-level formulations, and this study is the first stochas-
tic model for the uncertain multi-level lot-sizing problem with multiple transportation modes. Stochastic programming (SP)
is an approach in modeling the uncertain parameters. This approach can be used when the reason for data uncertainty is the
randomness. In these conditions, stochastic parameters of the model are estimated by well-known probability distributions
using enough historical data [11].
In the present research, the chance-constrained programming (CCP), as one of the stochastic programming approaches,
is utilized to formulate the uncertainty of demand. This approach was presented by Charnes et al. [24]. In the CCP method,
a confidence level is determined in which the constraints with stochastic parameter hold. A review paper is presented by
Sox et al. [25] in which the stochastic demand in static and dynamic lot-sizing problems is studied. Ramezanian and Saidi-
Mehrabad [26] developed the capacitated lot-sizing and scheduling problem in a flow shop environment with demand and
processing time uncertainties and sequence-dependent setups. They presented a mixed-integer programming (MIP) model
for the problem which is a big bucket formulation. On the basis of the above literature review, it can be concluded that the
integrated purchasing and production planning problem under uncertainty as a serious problem in present manufacturing
environments is not yet profoundly investigated in the previous studies. The most relevant articles are tabulated in Table 1
to examine different aspects of them compared with this study.
A short review of the existing literature exposes some gaps in devising an integrated mathematical model for lot-sizing
and scheduling problem under demand uncertainty. The present study aims these gaps and the following contributions
distinguish it from the related literature:

• Designing a novel model for integrated stochastic lot-sizing and scheduling problem.
• Considering production lot-sizing, purchasing lot-sizing and scheduling in a single mathematical model, at the same time.
• Considering supplier selection with various discount levels and multiple transportation modes under demand uncer-
tainty.
• Presenting multi-period and multi-level lot-sizing for multiple production lines and multiple products.
• Maximizing the total profit using demand choice flexibility in aggregated and disaggregated models

3. Problem description

The problem of this study is the integrated lot-sizing and scheduling of various products of different families on multiple
machines (production lines) in which the purchase lot-sizing and supplier selection are also considered, simultaneously. This
multi-level problem includes a set of suppliers with different discount rates based on the purchased quantity. Several raw
materials are used to manufacture products on production lines. Demand for products is stochastic in T periods. In each
period, the planner has to decide upon the purchase amount of each raw material, suppliers and transportation modes,
inventory of products and raw materials, production quantity of each product, and the sequence of lots that needs to be
produced.

Table 1
Comparison of features of related papers.
Author(s)
Raa and Aghezzaf [27]
Almada-Lobo et al. [2]
Tempelmeier and Buschkühl
[28]
Choudhary and Shankar [9]
Tiacci and Saetta [29]
Amorim et al. [5]
Amorim et al. [30]
Choudhary and Shankar [31]
Hishamuddin et al. [32]
4
Lot-sizing type Multi- Backorder Multiple Supplier Discount Demand Setup Solution method
M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18
product transportation selection uncertainty
modes
√ √
Lot-sizing problems with Fixed set-up cost Base scenario plan and
stochastic demands Two-stage stochastic
linear programming
√
Single machine multi-product Sequence-dependent setup Two novel linear
capacitated lot-sizing mixed-integer
programming
formulations and a
five-step heuristic
√
Dynamic multi-machine Common and Two new mathematical
lot-sizing and sequencing sequence-dependent models based on the
setup PLSPa and simple plant
location analogy.
√ √
Single item multi-period Integer linear
procurement lot-sizing programming approach
problem
√
Demand forecasting, lot-sizing Sequence-dependent setup Three simplified MILP
and scheduling on a rolling models
horizon basis
√ √
Comparing models for Minor and major setup Mathematical
lot-sizing and scheduling of programming
single-stage continuous
processes
√
Lot-sizing versus batching in Sequence-dependent and Developed models for
the production and initial product setup integrating with the
distribution planning vehicle routing problem
with time windows.
√ √ √ √
Joint decision of procurement MILP model
lot-size, supplier selection,
and carrier selection
√
economic lot-sizing problem Regular setup An efficient heuristic
of a two stage supply chain approach
system
(continued on next page)
Table 1 (continued)

Author(s) Lot-sizing type Multi- Backorder Multiple Supplier Discount Demand Setup Solution method

M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

product transportation selection uncertainty
modes
√
Lu et al. [33] Integrating run-based Regular setup Lagrangian-based heuristic
preventive maintenance into
the capacitated lot-sizing
problem
√ √ √
Ramezanian and Stochastic lot-sizing and Sequence-dependent setup Two MILP-based heuristics
Saidi-Mehrabad [26] scheduling problem in with rolling horizon
capacitated multi-stage framework
production system
√ √
Sereshti and Bijari [10] Profit maximization in Regular setup MILP model
simultaneous lot-sizing and
scheduling problem
√ √
Mostafaei et al. [34] Lot-Sizing and Scheduling MILP model
problem of pipeline network
√ √ √
Hu and Hu [35] Two-stage stochastic Sequence-dependent setup Non-linear programming
programming model for and a scenario tree
lot-sizing and scheduling
under uncertainty
√
Cunha et al. [36] Economic lot-sizing with Regular setup MILP model
remanufacturing and
uncapacitated production
√
Stefansdottir et al. [37] Modeling setups and cleanings Batch-, time-, and MILP model
in lot-sizing and scheduling volume-dependent
setups
√ √ √
Cunha et al. [6] An integrated approach for Regular setup MILP model
production lot-sizing and
raw material purchasing
√ √ √ √ √ √
This research Integrated models for Complex setup structure: Mixed integer linear
profit-maximizing and Sequence-independent programming
stochastic lot-sizing and minor and
scheduling problem Sequence-dependent
major (family) setup
a
Proportional Lot-sizing and Scheduling Problem.

5
6 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

The setup structure of the problem is complex comprising minor setups (for products of the same family), major se-
tups (between products of different families), sequence-dependent changeovers (between families), and setup carry-over
(between adjoining periods which holds the status of setup from a specific period to the next period). These are the notice-
able facets of a complex setup structure as illustrated by Karimi et al. [3]. More details of the features of these setups are
reported by Amorim et al. [5].
This paper proposes four models for the integrated lot-sizing problem: 1. Deterministic and aggregated formulation with
demand choice flexibility, 2. Stochastic and aggregated formulation with uncertain demand, 3. Deterministic and disaggre-
gated formulation with demand choice flexibility, 4. Stochastic and disaggregated formulation with uncertain demand. The
basic idea of the disaggregated mode is to disaggregate the variables of production lot-sizing by connecting each production
lot to the period in which it is needed. In other words, disaggregated models are a reformulation of aggregated models.
For deterministic demands, flexible demands as a decision variable can be chosen between the expected lower and upper
bounds based on the constraints of the problem for maximizing the total profit. For stochastic demands, The CCP method
as one of the stochastic programming methods is applied for maximizing the total profit based on the constraints of the
problem and also the constraint of demand satisfaction under a given confidence level.
The following assumptions are considered in the proposed models:
• The capacity of suppliers for providing different materials is finite.
• The capacity of the product warehouse and raw material warehouse in each period is finite.
• The production of a product does not take place until all the materials required for that product are provided.
• Each product at any time can be produced at most by one production line and also each production line can produce at
most one product at every time.
• The setup of a production line has to be completed in the same period that it is started.
• Setup preservation is a feature of the presented model, which implies that in case of having idle time, the status of setup
does not vary after it.
• There are sequence-dependent changeovers between families and the triangle inequality holds for setups.

4. Mathematical models

4.1. Indices, parameters, and decision variables

Following notation is adopted to formulate mathematical models.

Indices
t ∈ {1, ..., T} periods
t ∈ { + 1, ..., T} periods index used only for the delivery of purchased materials with the lead time 
s ∈ {1, ..., S} suppliers
d ∈ {1, ..., D} discount levels
m ∈ {1, ..., M} transportation modes
f ∈ {1, ..., F} raw materials
k ∈ {1, ..., K} products
i, j ∈ {1, ..., N} families
l ∈ {1, ..., L} lines

Parameters
Kj set of products belonging to family j
|Kj | number of products belonging to family j
Ldkt lower bound of demand for product k in period t
Udkt upper bound of demand for product k in period t
OFf occupied space by raw material f in the raw materials warehouse
OKk occupied space by product k in the products warehouse
CapFf t warehouse capacity for raw material f in period t
CapKkt warehouse capacity for product k in period t
Caplt available capacity (time) of production line l in period t
rkt sale revenue of one unit of product k in period t
eFf kl consumption of raw material f for producing one unit of product k on production line l
 lead time for delivering raw materials
DISsd discount rate of supplier s connected with level d
usd upper bound of order size in discount level d from supplier s
ocs order cost from supplier s
bcfs purchase cost of raw material f from supplier s
trcfsm transportation cost of material f from supplier s by mode m
hFf holding cost for one unit of raw material f
 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 7

hKk holding cost for one unit of product k

cpkl production cost for one unit of product k on production line l
pkl processing time for one unit of product k on production line l
scpkl sequence independent setup cost for product k on production line l
stpkl sequence independent setup time for product k on production line l
scbijl sequence-dependent setup cost of a changeover from family i to family j on production line l
stbijl sequence-dependent setup time of a changeover from family i to family j on production line l
LBLlk minimum production lot-size (quantity) of product k when produced on production line l
Mbig a big number

Decision variables
Dkt accepted demand for product k in period t
Q Ff sdtm quantity of raw material f purchased from supplier s in discount level d and transported by mode m in period t
Qklt quantity of product k produced on production line l in period t
IFf t inventory of raw material f in period t
K
Ikt inventory of product k in period t
Vjlt auxiliary variable for sub-tours elimination
Xijlt 1, if a changeover from family i to family j occurs on production line l in period t (0, otherwise)
Ajlt 1, if production line l is set up for family j at the beginning of period t (0, otherwise)
P klt 1, if production line l is set up for product k in period t (0, otherwise)
Zsdt 1, if there is an acquisition for supplier s in discount level d in period t (0, otherwise)
Ystm 1, if any raw material is purchased from supplier s and transported by mode m in period t (0, otherwise)

4.2. Deterministic and aggregated formulation with demand choice flexibility

The deterministic and aggregated model of the problem is formulated using the above notation as follows:
 
   
Max rkt Dkt − (1 − DISsd ) (bc f s Q Ff sdtm ) − (ocsYstm )
k t s d t f m s t φ m
   
− tr c f sm Q Ff sdtm − c pkl Qklt − hFf IFf t − hKk Ikt
K

f s d t m k l t f t k t
 
− sc pkl P  klt − scbi jl Xi jlt (1)
k l t i j l t

s.t.

us,d−1 Zsdt < Q Ff sdtm ≤ us,d Zsdt ∀s, d, t (2)
f m

Zsdt ≤ Ystm ∀s, t, m (3)
d

Q Ff sdtm ≤ MbigYstm ∀s, t, m (4)
f d
  
IFf,t−1 + Q Ff,s,d,t  ,m = (eFf kl Qklt ) + IFf t (5)
s d m k∈K F ( f ) l

K
Ikt K
= Ik,t−1 + Qklt − Dkt ∀k, t (6)
l

Ldkt ≤ Dkt ≤ U dkt ∀k, t (7)

 
   
P klt
 
≤ K j A jlt + Xi jlt ∀ j, l, t (8)
k∈K j i

Ca plt 
Qklt ≤ P ∀k, l, t (9)
pkl klt
 
Xi jlt ≤ X jilt + Ailt ∀i, l, t = T (10)
j j
8 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

 
Xi jlt + Ai,l,t+1 = X jilt + Ailt (11)
j j


A jlt = 1 ∀l, t (12)
j

Vilt + N Xi jlt − (N − 1 ) ≤ V jlt ∀i, j, l, t (13)

 
( pkl Qklt + st pkl P klt ) + st bi jl Xi jlt ≤ Ca plt ∀l, t (14)
k∈K j i j=i


Qklt ≥ LBLlk Pklt ∀k, l, t (15)

OFf IFf t ≤ CapFf t ∀ f, t (16)

OKk Ikt
K
≤ CapKkt ∀k, t (17)

Qklt , IFf t , Ikt

K
, Q Ff sdtm , V jlt ≥ 0 ∀s, f, m, t, d, k, l, j (18)

 ,Z ,Y ∀s, m, t, d, k, l, i, j
Xi jlt , A jlt , Pklt sdt stm ∈ {0, 1} (19)

Dkt ≥ 0 ∀k, t (20)

The objective function (1) is to maximize the total sale revenues minus total costs comprising: (I) raw materials purchase
costs in which discounts are considered; (II) order costs that indicate a fixed cost of delivery without consideration of the
order size; (III) transportation costs; (IV) production costs of all lines; (V) raw materials holding costs and products holding
costs, and (VI) setup costs which represent the readiness of production lines to produce various products (the costs of
changeover setup between families and the costs of products setup).
Constraints (2) are to set the discount level d which is offered by supplier s in period t according to the quantity of
purchased materials. Constraints (3) represent that in each period, at most one discount level d can be activated for supplier
s, while constraints (4) indicate whether there is a raw material order to the supplier s within each period. Constraints
(5) show the inventory balance of raw materials, i.e., the final inventory of a material in the previous period (t − 1), plus
the amount which is purchased in previous periods (t − ) and gotten in the period t has to be equal to the total amount
of this material which is used in period t plus the material inventory at the end of period t. These constraints establish
the connection of production lot-sizing and the purchase of raw materials. Constraints (6) represent the relation among
inventory, demand and production levels. Constraints (7) indicate the lower and upper demand bounds. Constraints (8) and
(9) show that the production of products in family j cannot be started in period t unless a setup was previously made
for it at the beginning of this period or there is a changeover for it during this period. Constraints (9) represent that the
Ca p
production quantity of product k on line l in period t is at most equal to p lt if a setup is done for it. Constraints (10) and
kl
(11) guarantee the flow balance of setups as a linked network, i.e., the input flow has to be equal to the output flow of
every node. They denote that a changeover from family i to other families can be occurred on production line l in period t,
when a changeover from other families to family i is done or the production line l is set up for family i at the beginning
of period t. Constraints (11)-(13) determine the sequence of families on all production lines in every period and also track
the setup status of lines by recording the item (product) that a production line (machine) is provided to produce (the
information of setup carryover or transition of setup conditions between different periods of the planning horizon is thereby
tracked). Constraints (12) represent that there exists only one setup status (for only one family) at the beginning of every
period. Constraints (13) are for eliminating sub-tours (evading separated sub-tours). These restrictions are comparable with
the constraints of TSP by considering an auxiliary variable (Vilt ) to track the setup status of production lines within any
sequence. Constraints (14) check the total production and setup time so as not to exceed the capacity of production lines
in each period. Constraints (15) show the minimum quantity of lot-size for a product when it is produced on a production
line. Constraints (16) and (17) check the warehouse capacity of raw materials and products, respectively. Constraints (18)-
(20) show the different kinds of variables used in the proposed model.
In this formulation, the variable of production lot-sizing is aggregated based on the period in which products are deliv-
ered.
 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 9

f (dk t )

1 (Udk t −Ldk t )
α

Ldk t (dk t )α Udk t

Fig. 1. Uniform density function.

4.3. Stochastic and aggregated formulation with uncertain demand

In this part, the stochastic model is presented. When demand for products is stochastic, the CCP method can be applied
to cope with the uncertain demand. In the present study, a new design based on the CCP approach is applied to formulate
the lot-sizing and scheduling problem as a stochastic mixed-integer linear programming. The Stochastic model is formulated
as follows:
 
   
Max rkt d˜kt − (1 − DISsd ) ( bc f s Q Ff sdtm ) − tr c f sm Q Ff sdtm
k t s d t f m f s d t m
  
− (ocsYstm ) − c pkl Qklt − sc pkl P  klt
s t φ m k l t k l t
  
− scbi jl Xi jlt − hFf IFf t − hKk Ikt
K
(21)
i j l t f t k t

s.t.
-Eqs. (2)–(5), -Eqs. (8)–(19),

K
Ik,t−1 K
− Ikt + Qklt ≥ d˜kt ∀k, t (22)
l

In the above model, d˜kt , demand for product k in period t, is regarded as the stochastic parameter. The probability
distribution of this uncertain parameter is assumed to be acquired by applying historical data. The stochastic problem will
be solved after being converted to a deterministic model by the CCP method. Based on the CCP, the stochastic constraint is
rewritten to achieve a feasible area in which this constraint is satisfied at least with the probability (1 − α ).
When demand (d˜kt ) has a general probability distribution, CCP method can be applied for constraints (22) as follows:

p (d˜kt ≤ Ik,t−1
K K
− Ikt + Qklt ) ≥ 1 − α . (23)
l

 (d˜kt )α
The point (d˜kt )α with p (d˜kt ≤ (d˜kt )α ) = 1 − α can be computed by − ∞ f (d˜kt ) d (d˜kt ) = (1 − α ). In which f (d˜kt ) is the
probability density function. Therefore, the following equation is achieved:

K
Ik,t−1 K
− Ikt + Qklt ≥ (d˜kt )α ∀k, t (24)
l

In this study, the uniform distribution in (Ldkt ,Udkt ) is considered for the stochastic demands. Fig. 1 depicts the uniform
density function for it.
Consequently, constraints (24) are converted to constraints (25).

(d˜ ) − Ldkt
p(d˜kt ≤ (d˜kt )α ) = 1 − α ⇒ kt α = (1 − α ) ⇒ (d˜kt )α = α .Ldkt + (1 − α ).U dkt ,
U dkt − Ldkt
 d˜kt ≈U (Ldkt ,U dkt ) K 
p(d˜kt ≤ Ik,t−1
K K
− Ikt + Qklt ) ≥ 1 − α −−−−−−−−−→ Ik,t−1 K
− Ikt + Qklt ≥ α .Ldkt + (1 − α ).U dkt ,
l l

K
Ik,t−1 K
− Ikt + Qklt ≥ α .Ldkt + (1 − α ).U dkt ∀k, t (25)
l
10 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

Eventually, the stochastic problem can be solved after being transformed into a deterministic model by the CCP method.
Therefore, the deterministic mathematical formulation is developed as follows:
 
  
Max rkt (α .Ldkt + (1 − α ).U dkt ) − (1 − DISsd ) ( bc f s Q Ff sdtm )
k t s d t f m
  
− tr c f sm Q Ff sdtm − (ocsYstm ) − c pkl Qklt
f s d t m s t φ m k l t
   
− sc pkl P  klt − scbi jl Xi jlt − hFf IFf t − hKk Ikt
K
(26)
k l t i j l t f t k t

s.t.
-Eqs. (2)–(5), -Eqs. (8)–(19), Eq. (25)

4.4. Deterministic and disaggregated formulation with demand choice flexibility

This model has a different way to formulate the lot-sizing problem. The variable of production lot-sizing is disaggregated
based on the period in which products are delivered. This method is according to the transportation problem that is recog-
nized as a strong model to formulate lot-sizing problems [38]. This approach uses the idea of Traveling Salesman Problem
(TSP) for scheduling. New required variables and the proposed model are presented as follows:

Qkltg : quantity of product k produced on line l in period t to satisfy the demand of period g.
Qkl0g : initial inventory of product k which is used in period g.
RIk0 : unused amount of initial inventory of product k at the end of the planning horizon.
 
   
Max rkt Dkt − (1 − DISsd ) ( bc f s Q Ff sdtm ) − tr c f sm Q Ff sdtm
k t s d t f m f s d t m

 
T 
− (ocsYstm ) − phkl (g−t ) Qkltg − sc pkl P  klt
s t φ m k l t g=t k l t

  
T 
− scbi jl Xi jlt − hFf IFf t − hKk (g − 1 )Qkl0g − hKk T .RIk0 (27)
i j l t f t k l g=1 k

s.t.
-Eqs. (7)–(8), -Eqs. (10)–(13), Eq. (16), -Eqs. (19)–(20)
  
T
IFf,t−1 + Q Ff,s,d,t  ,m = (eFf kl Qkltg ) + IFf t ∀ f, t, t  =  + 1, ..., T (28)
s d m k∈K F ( f ) l g=t


g
Qkltg = Dkg ∀k, g (29)
l t=0


T
Qkl0g + RIk0 = IkK0 ∀k (30)
l g=1

Ca plt 
Qkltg ≤ P ∀k, l, t, g = t, ..., T (31)
pkl klt
 
 
T 
pkl Qkltg + st pkl P  klt + st bi jl Xi jlt ≤ Ca plt ∀l, t (32)
k∈K j g=t i j=i


T

Qkltg ≥ LBLlk Pklt ∀k, l, t (33)
g=t

−1  
 t T
OKk Qkltg ≤ CapKkt  ∀k, t  ∈ {1, ..., T } (34)
l t=0 g=t 

Qkltg , IFf t , Q Ff sdtm , V jlt ≥ 0 ∀s, f, m, t, d, k, l, j (35)

 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 11

The holding cost of initial inventory until the period which is delivered (hKk (g − 1 )Qkl0g ) and the holding cost of unused
initial inventory (hKk T .RIk0 ) are considered in the objective function (27). In addition, the parameterphkl(g − t) is a combination
of the production cost and holding cost of product k that is delivered (g-t) periods after it’s production time. This parameter
is computed using Eq. (36).
phkl (g−t ) = c pkl + (g − t )hKk (36)
Constraints (29) represent that the demand for period g is satisfied by initial inventory or productions for period g.
Constraints (30) show that the initial inventory of products is equal to the sum of the unused amount of initial inventory at
the end of the planning horizon and consumption amount of it in different periods.

4.5. Stochastic and disaggregated formulation with uncertain demand

In this section, a new stochastic model based on the CCP approach is formulated with disaggregated variables. By making
some changes in the objective function (27) and Constraints (29), the stochastic and disaggregated model is formulated as
follows:
 
  
Max rkt (α .Ldkt + (1 − α ).U dkt ) − (1 − DISsd ) ( bc f s Q Ff sdtm )
k t s d t f m

  

T
− tr c f sm Q Ff sdtm − (ocsYstm ) − phkl (g−t ) Qkltg
f s d t m s t φ m k l t g=t

   

T
− sc pkl P  klt − scbi jl Xi jlt − hFf IFf t − hKk (g − 1 )Qkl0g
k l t i j l t f t k l g=1

− hKk T .RIk0 (37)
k

s.t.
-Eq. (2)–(4), Eq. (16), Eqs. (19), Eq. (28), -Eq. (30)–(35)

g
Qkltg = α .Ldkg + (1 − α ).U dkg ∀k, g (38)
l t=0

5. Computational experiments

5.1. Data description

In this part, experimental results are discussed. The effectiveness of the developed models is represented by 39 test
problems. The necessary data sets for experiments are generated according to the method of Amorim et al. [5] and Haase
and Kimms [39] with some modifications. There are two production lines whose capacities in each period are determined
based on the demand bounds as follows:
 
pkl × Ldkt + k pkl × U dkt
Ca plt = k
∀l, t (39)
2 × ut ilizat ion × L
The parameter “utilization” in the statement (39) is the utilization level of lines capacity, and as it increases, the capacity
of production lines becomes tighter. This multiplier is considered equal to 0.4,0.6, or 0.8 in different scenarios. The lower
limit of demands (Ldkt ) has the uniform distribution with the interval [30–49], and the upper limit of demands (Udkt ) has
the uniform distribution with the interval [50–70]. The same distribution with parameters [1,3] is used to generate the
processing times (pkl ). Setup times between families (stbijl ) follow the uniform distribution in the interval [5,10], avoiding
non-triangular setups. The setup costs between families are determined by statement (40).
scbi jl = st bi jl × 50 ∀i, j, l (40)
There are two suppliers to provide raw materials with the all-unit discount structure in which a particular discount rate
is applied for all purchased materials. Table 2 represents the structure of all-unit discount, which is implemented in this
paper. As shown in Table 2, the capacity of suppliers 1 and 2 is 60 0 0 units.
The lead time of delivery for raw materials () is 1 period. The raw materials purchased by the company can be trans-
ported from the supplier by two transportation modes. The parameterα of stochastic models is considered equal to 0.1. Some
other needed parameters for solving and analyzing the models are presented in Table 3.
In order to examine and compare the deterministic and stochastic models, 39 problems of different sizes and utilization
rates are generated. The problems are coded in the environment of CPLEX 12.6 software and computational results are
obtained using a PC with a 2 GB RAM and 2.2 GHz CPU.
12 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

Table 2
Ranges and rates of discounts for suppliers.

Supplier Quantity Range Discount Rate

From to

1 0 2999 0%
3000 6000 10%
2 0 2999 0%
3000 6000 8%

Table 3
Sources of random values from the uniform distribution.

Parameter Value Parameter Value

stpkl U ~ (1,3) cpkl U ~ (2,10)

stpkl U ~ (2,10) trcfsm U ~ (1,3)
hKk U ~ (2,10) bcfs U ~ (2,5)
hFf U ~ (1,3) ocs U ~ (20,50)
eFf kl U ~ (1,3) rkt U ~ (3,8)

5.2. Results and discussion

The results of the stochastic model with uncertain demand and deterministic model with demand choice flexibility in two
aggregated and disaggregated modes, objective function value (OFV) and CPU time for solving the problems are tabulated in
Table 4. The size of problems including the number of products, families and periods is represented in the second column
of Table 4. The third column of this table shows the utilization rates for these problems.
In most solved models, despite the difficulty in solving problems with the higher utilization level (i.e. tighter capacity),
the value of the objective function in these problems is less or equal. Based on the results shown in Table 4, the computa-
tional performance (CPU time) of the stochastic model in almost 60% of cases is better than the deterministic model. The
objective function value of the deterministic model with demand choice flexibility in all problems and both aggregated and
disaggregated modes is better than the stochastic model with uncertain demand. However, this comparison may not be al-
ways true, because the parameterα of stochastic models is considered equal to 0.1 for these cases and by changing the value
of this parameter, the objective function values will change. In Section 5.3.2, the impact of changing the parameterα on the
objective function value is examined. Therefore, the purpose of this paper is not to compare the deterministic and stochas-
tic models with each other. It is to compare the results of aggregated and disaggregated models under deterministic and
stochastic demands. The main insight from this study is the surprising computational efficiency of the aggregated lot-sizing
model over the disaggregated one.
As shown in Table 4, the PC with the aforementioned features cannot solve the deterministic model with the size of
6 × 2 × 120 in disaggregated mode and also the stochastic model with the size of 6 × 2 × 360 in both aggregated and
disaggregated modes within 50 0 0 s. The solution of medium-size problems can be obtained using the presented models
in a reasonable time. Generally, mathematical models cannot be applied for very large-size problems efficiently, thus re-
searchers develop meta-heuristic algorithms in these problems. One of the most important reasons for the success of the
meta-heuristic algorithms is their adaptability and capability to handle complex and large problems. As a result, these algo-
rithms are often provided for extensions of the standard lot-sizing problems in which no special-purpose algorithm exists
and those that are too complicated to solve by commercial integer optimization solvers [40].

5.3. Sensitivity analysis

In this part, a problem with the size of 12 × 6 × 6 (12 products in 6 families and 6 periods) and utilization rate 0.6 is
studied to analyze the sensitivity of presented models.

5.3.1. Effect of all-unit discount rates

In order to analyze the impact of the discount structure on the model’s solution, three different scenarios are inves-
tigated. In Scenario 1, it is considered that none of the suppliers offers discounts (DIS12 = 0 and DIS22 = 0) whereas, in
Scenario 2, only Supplier 1 offers 30% discounts (DIS12 = 0.3 and DIS22 = 0) and in Scenario 3, only Supplier 2 offers 30%
discounts (DIS12 = 0 and DIS22 = 0.3). Tables 5 and 6 present the effect of suppliers’ discount structure on the productions,
purchases, revenues and costs of the aggregated and disaggregated models, respectively.
In both aggregated and disaggregated modes, Scenario 2 of the deterministic model with demand choice flexibility has
the highest revenue, the lowest cost and thus the best objective function value among all scenarios of these two models. The
lowest revenue and production level belongs to Scenario 3 of the deterministic model. The highest production level occurs
in scenarios of the stochastic model with the same quantity of 2281 and 2350 for aggregated and disaggregated modes,
 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 13

Table 4
Results of the deterministic and stochastic models.

No. Problem Utilization Deterministic model with demand choice flexibility Stochastic model with uncertain demand
size
Aggregated Disaggregated Aggregated Disaggregated
(K × N × T)
OFV CPU (s) OFV CPU (s) OFV CPU (s) OFV CPU (s)

1 8 × 4 × 10 0.4 63,627.66 1826.8 63,628.83 2629.89 61,645.18 699.63 61,646.3 1008.56

2 0.6 63,494.25 751.16 63,494.25 2484.22 61,607.3 613.03 61,608 574.91
3 0.8 63,271 2265.22 63,271 3061.09 61,349.3 1930.19 61,350.3 1904.42
4 12 × 6 × 5 0.4 61,418.72 43.73 61,418.72 145.16 59,705.46 65.25 59,706.465 175.69
5 0.6 60,898 51.34 60,898 308.39 59,261.62 256.5 59,262.625 265.5
6 0.8 60,773.25 110.66 60,773.25 316.41 59,169.62 105.09 59,170.625 342.19
7 12 × 6 × 6 0.4 64,556.67 305.52 64,556.67 570.6 61,942.77 422.31 62,643.77 1794.81
8 0.6 64,134.07 734.53 64,134.07 1008.11 61,780 781.08 62,356 540.51
9 0.8 63,910.25 641.19 63,910.25 2819.19 61,137.6 805.08 62,149.6 1311.03
10 14 × 7 × 5 0.4 68,277.8 89.02 68,277.2 280.61 66,187.72 194.75 66,189.4 296.44
11 0.6 67,652.25 147.91 67,652.25 853.75 65,577.68 196.28 65,578.76 945.45
12 0.8 67,423.25 303.75 67,423.5 935.7 65,392.4 348.48 65,394.4 1072.77
13 16 × 8 × 5 0.4 78,484.69 293.11 78,484.69 3449.09 76,127.42 209.69 76,128.54 768.66
14 0.6 77,704.25 476.7 77,705.25 2644.08 75,484.86 216.22 75,485.94 1138.66
15 0.8 77,587.25 484.36 77,587.25 1108.53 75,252.5 385.78 75,253.5 2193.45
16 18 × 3 × 5 0.4 104,564.75 1.16 101,064.75 3.17 96,940.875 0.72 96,941.875 10.16
17 0.6 100,816.25 1.78 100,816.25 6.56 96,900.875 2.02 96,901.875 18.27
18 0.8 100,370.75 5.39 100,370.75 9.91 96,289.875 5.2 96,290.875 10.53
19 60 × 3 × 5 0.4 326,288.46 60.33 326,288.54 65.7 320,668.66 89.25 320,670.5 81.77
20 0.6 321,079.5 291.81 321,079.83 444.11 311,425.1 881.02 311,426.98 171.73
21 0.8 317,003.85 779.38 317,003.95 1852.41 305,700.1 1083.31 305,701.9 1297.94
22 6 × 3 × 15 0.4 63,339 1380.53 63,339 2156.7 61,373.375 1699.72 61,374.375 2031.66
23 0.6 63,339 2323.47 63,339 1897.5 61,373.375 986.16 61,374.375 4654.73
24 0.8 63,339 2869.08 63,339 1303.8 61,373.375 2214.67 61,374.375 1737.84
25 4 × 2 × 15 0.4 32,899.5 0.69 30,539.5 6.27 30,552.5 0.55 30,554.5 9.38
26 0.6 32,899.5 0.75 30,539.5 11.02 30,552.5 1.09 30,554.5 11.95
27 0.8 32,899.5 0.81 30,539.5 15.47 30,552.5 0.63 30,554.5 9.5
28 6 × 2 × 30 0.4 87,842.5 13.75 87,842.5 242.95 80,823.45 5.7 80,825.45 69.73
29 0.6 87,842.5 14.75 87,842.5 224.17 80,823.45 5.8 80,825.45 55.45
30 0.8 87,842.5 15.86 87,842.5 203.45 80,823.45 4.12 80,825.45 50.22
31 6 × 2 × 60 0.4 161,741 21.94 161,741 783.94 148,123.9 16.64 148,124.9 156.64
32 0.6 161,741 22.73 161,741 828.42 148,123.9 22.02 148,124.9 214.92
33 0.8 161,741 28.64 161,741 771.88 148,123.9 47.31 148,124.9 203.27
34 0.4 309,540 83.56 – – 282,721.8 67.16 282,723.8 573.14
6 × 2 × 120
35 0.6 309,540 86.7 – – 282,721.8 63.47 282,723.8 884.7
36 0.8 309,540 83.63 – – 282,721.8 55.55 282,723.8 832.45
37 0.4 900,728 590.5 – – 809,750.4 435.36 – –
6 × 2 × 360
38 0.6 900,728 593.36 – – 809,750.4 352.53 – –
39 0.8 900,728 740.75 – – 809,721.4 527.11 – –

respectively. However, in both modes, Scenario 1 of the stochastic model has the worst objective function value, because
this scenario has the highest cost among all scenarios of the two models.
In Scenario 2 of the deterministic and stochastic models for both aggregated and disaggregated modes, the share of
purchase orders given to Supplier 1 is more than Supplier 2, as a result, the transportation cost decreases because Supplier
1 is placed near to the company.
As can be seen in Tables 5 and 6, in scenario 2 of both models, the order cost is less than the other two scenarios.
Due to the quantity discount scheme and less transportation cost of Supplier 1, larger volumes of materials are ordered
to this supplier and thus the number of orders decreases. All in all, offering a discount by a supplier does not necessarily
mean buying more from that supplier, because the amount of purchases from one supplier also depends on other factors
such as order cost and transportation cost (in addition to the discount rate). Therefore, using these models, companies can
compare discount schemes and purchasing costs of different suppliers and achieve a proper managerial policy for selecting
and purchasing from multiple suppliers.

5.3.2. Effect of parameter α on the stochastic model

Parameterα pertains to the stochastic model, therefore the impact of its change on this model is only examined in this
section. Tables 7 and 8 indicate that with an increase in parameterα , production quantity, revenues, costs and objective
function value will be decreased in aggregated and disaggregated modes, respectively.
14 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

Table 5
Effect of all-unit discount rates on the aggregated model’s solution,.

Production, purchasing, revenues, costs, and Deterministic model with demand choice Stochastic model with uncertain demand
OFV flexibility

Scenario 1 Scenario 2 Scenario 3 Scenario 1 Scenario 2 Scenario 3

DIS12 = 0 DIS12 = 0.3 DIS12 = 0 DIS12 = 0 DIS12 = 0.3 DIS12 = 0
DIS22 = 0 DIS22 = 0 DIS22 = 0.3 DIS22 = 0 DIS22 = 0 DIS22 = 0.3

Production quantity 2215 2217 2206 2281 2281 2281

Purchasing quantity from supplier 1 in level 1 3451 0 3406 3535 0 3399
Purchasing quantity from supplier 1 in level 2 0 7235 0 0 7409 0
Purchasing quantity from supplier 2 in level 1 3767 0 1318 3963 175 1623
Purchasing quantity from supplier 2 in level 2 0 0 2500 0 0 2500
Sales revenue 110,530 110,570 110,090 110,233 110,230 110,230
Purchasing cost 14,436 15,414 12,948 14,996 16,206 13,624
Transportation cost 10,985 7235 11,042 11,461 7759 11,645
Production cost 11,716 11,721 11,483 11,880 12,060 12,084
Sequence-dependent setup 2900 2900 2700 3150 3400 3250
Sequence independent setup 244 211 227 270 257 258
Holding cost of materials 0 0 0 0 54 6
Holding cost of products 5238 5664 5560 5490 5654 5706
Order cost 900 384 900 1200 492 900
Total costs 46,419 43,529 44,860 48,447 45,882 47,473
OFV 64,116 67,040 65,232 61,779 64,344 62,753

Table 6
Effect of all-unit discount rates on the disaggregated model’s solution.

Production, purchasing, revenues, costs, and OFV Deterministic model with demand choice Stochastic model with uncertain demand
flexibility

Scenario 1 Scenario 2 Scenario 3 Scenario 1 Scenario 2 Scenario 3

DIS12 = 0 DIS12 = 0.3 DIS12 = 0 DIS12 = 0 DIS12 = 0.3 DIS12 = 0
DIS22 = 0 DIS22 = 0 DIS22 = 0.3 DIS22 = 0 DIS22 = 0 DIS22 = 0.3

Production quantity 2315 2318 2303 2350 2350 2350

Purchasing quantity from supplier 1 in level 1 3451 0 3397 3478 0 3325
Purchasing quantity from supplier 1 in level 2 0 7240 0 0 7279 0
Purchasing quantity from supplier 2 in level 1 3767 0 1306 3897 175 1572
Purchasing quantity from supplier 2 in level 2 0 0 2502 0 0 2500
Sale revenues 110,530 110,590 110,040 110,230 110,230 110,230
Purchasing cost 14,436 15,428 12,909 14,750 15,933 13,388
Transportation cost 10,985 7240 11,013 11,272 7629 11,469
Production + Inventory cost 13,378 13,701 13,573 13,528 13,724 13,676
Sequence-dependent setup 2900 2900 2700 3150 3400 3250
Sequence independent setup 244 211 227 270 249 258
Holding cost of materials 0 0 0 0 24 0
Holding cost of products from the initial inventory 3576 3682 3488 3700 3822 3940
Order cost 900 384 900 1200 492 900
Total costs 46,419 43,546 44,810 47,870 45,273 46,881
OFV 64,116 67,041 65,235 62,356 64,953 63,345

Table 7
Effect of parameterα on the stochastic and aggregated model with uncertain demand.

Production, Revenues, Aggregated

costs, and OFV
α = 0.01 α = 0.03 α = 0.05 α = 0.1 α = 0.15
Production quantity 2379 2378 2345 2281 2212
Sale revenues 113,410 112,710 112,000 110,230 108,450
Total costs 50,109 50,100 49,529 48,450 47,265
OFV 63,310 62,601 62,471 61,780 61,185

Table 8
Effect of parameterα on the stochastic and disaggregated model with uncertain demand.

Production, Revenues, Disaggregated

costs, and OFV
α = 0.01 α = 0.03 α = 0.05 α = 0.1 α = 0.15
Production quantity 2479 2441 2415 2350 2293
Sale revenues 113,410 112,710 112,000 110,230 108,450
Total costs 50,100 49,443 49,004 47,874 46,903
OFV 63,310 63,267 62,996 62,356 61,547
 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 15

Table 9
The comparison of the four scenarios under demand choice flexibility.

Size Integration Demand choice flexibility

level

Aggregated Disaggregated

Revenue Pr Sc Pu Obj (Profit) AveDev% Revenue Pr Sc Pu Obj (Profit) AveDev%

8 × 4 × 10 1
SPr 134,200 17,527 31,756 70,252 14,665 77% 134,200 17,842 30,302 67,718 18,338 71%
2
SPr+ Sc 134,200 19,840 3501 70,904 39,955 37% 134,200 20,030 3501 63,432 47,237 26%
SP3r+Pu 133,910 19,670 23,907 45,146 45,187 29% 133,910 19,670 26,657 45,146 42,437 33%
4
SPr+Sc+Pu 132,930 21,383 3573 44,347 63,627 - 132,930 21,383 3573 44,346 63,628 -
12 × 6 × 5 1
SPr 97,219 11,112 16,138 35,538 34,431 44% 97,219 11,493 15,854 27,752 42,120 31%
2
SPr+ Sc 97,219 12,251 2567 31,081 51,320 16% 97,219 12,639 2319 29,992 52,269 15%
SP3r+Pu 96,421 12,459 16,392 19,108 48,462 21% 96,421 12,427 16,604 19,138 48,252 21%
4
SPr+Sc+Pu 95,465 13,197 2338 18,512 61,418 - 95,377 13,158 2338 18,463 61,418 -
12 × 6 × 6 1
SPr 113,770 14,228 24,588 50,850 24,104 63% 113,770 14,606 19,078 50,351 29,735 54%
2
SPr+ Sc 113,770 15,841 3384 50,383 44,162 32% 113,770 16,009 3399 47,079 47,283 27%
SP3r+Pu 112,550 15,742 19,301 27,342 50,165 22% 112,550 15,715 32,325 27,369 37,141 42%
SP4r+Sc+Pu 112,250 17,593 3346 26,755 64,556 - 112,190 17,575 3346 26,713 64,556 -
14 × 7 × 5 1
SPr 109,490 12,822 18,130 41,067 37,471 45% 109,490 13,403 19,998 31,671 44,418 35%
2
SPr+ Sc 109,490 14,411 3154 40,413 51,512 25% 109,490 14,723 3155 38,305 53,307 22%
SP3r+Pu 108,040 14,251 18,886 21,518 53,385 22% 108,040 14,243 23,590 21,524 48,683 29%
4
SPr+Sc+Pu 106,710 15,229 2664 20,540 68,277 - 106,620 15,190 2664 20,489 68,277 -

(Pr: total production cost; Sc: scheduling cost; Pu: total purchase cost; Obj: objective function value (Profit); AveDev%: average deviation percentage).

The feasible region of the solution and the computational complexity of the stochastic model depends on the confidence
level which is defined by the planner. If a high level of confidence is needed, the feasible region is small and if the level of
confidence is reduced, the feasible region becomes larger [41].

5.3.3. Effect of integrating the scheduling, purchase and production lot-sizing problems
In order to analyze the performance of proposed models and the amount of gains obtained by integrating all decisions
compared to separated models, four instances with the size of 8 × 4 × 10, 12 × 6 × 5, 12 × 6 × 6 and 14 × 7 × 5 are solved
under integrated and separated conditions. The parameters are generated according to the procedure of Section 5.1 and the
parameter “utilization” is considered equal to 0.4.
Four following scenarios are investigated and the results are compared:
1 ): when the production lot-sizing problem is separated from the scheduling and purchase lot-sizing prob-
1. Scenario 1 (SPr
lem. Based on the result of production lot-sizing problem, the scheduling and purchasing problems are solved and their
costs are calculated.
2
2. Scenario 2 (SPr+ Sc ): when the production lot-sizing and scheduling problems are integrated but separated from the pur-
chase lot-sizing problem. Based on the result of production lot-sizing and scheduling problems, the purchasing problem
is solved and its cost is calculated.
3. Scenario 3 (SP3r+Pu ): when the production and purchase lot-sizing problems are integrated but separated from the
scheduling problem. Based on the result of production and purchase lot-sizing problems, the scheduling problem is
solved and its cost is calculated.
4. Scenario 4 (SP4r+Sc+Pu ): when all three problems (purchase, production and scheduling) are integrated.

Tables 9 and 10 show the results of these four scenarios under demand choice flexibility and stochastic demand, respec-
tively. In these tables, production and holding costs are considered as the total production cost (Pr), sequence dependent and
independent setup costs are grouped as the scheduling costs (Sc), and purchase, transportation and order costs are regarded
as the total purchase cost (Pu). “AveDev%” shows the average deviation percentage of scenarios 1, 2 and 3 from the objective
function value of scenario 4 (wholly integrated model).
Table 11 represents the comparison of scenarios 1, 2 and 3 with the wholly integrated model (scenario 4) under demand
choice flexibility and stochastic demand based on the average of results of Tables 9 and 10. According to the results, under
demand choice flexibility, the average deviation percentage of scenarios 1, 2 and 3 is 50%, 24% and 27% less than the objec-
tive function value of scenario 4, respectively. Under stochastic demand, the average deviation percentage of scenarios 1, 2
and 3 is 49%, 22% and 30% less than the objective function value of scenario 4, respectively. Therefore, a significant gain can
be obtained by integrating production lot-sizing and purchase lot-sizing problems compared to separated models.
This research has several main managerial implications and applications in a real-life engineering setting: 1. the models
proposed in this study help planners to decide upon the production quantity of products and the purchase amount of raw
materials from various suppliers with different discount rates, simultaneously (unlike previous models). In reality for most
manufacturing environments, these problems are interconnected. Based on the results of this study, the average profit of the
separated (purchase from production) lot-sizing model under demand choice flexibility and stochastic demand is 24% and
22% less than the integrated model, respectively; 2. Decision-makers can use models of this paper in an environment with
16 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18

Table 10
The comparison of the four scenarios under stochastic demand.

Size Integration Stochastic demand

level

Aggregated Disaggregated

Revenue Pr Sc Pu Obj (Profit) AveDev% Revenue Pr Sc Pu Obj (Profit) AveDev%

8 × 4 × 10 1
SPr 129,840 17,079 29,706 61,616 21,439 65% 129,840 17,308 26,450 63,006 23,076 63%
2
SPr+ Sc 129,840 19,278 3520 68,527 38,515 38% 129,840 19,362 3508 59,955 47,015 24%
SP3r+Pu 129,840 19,189 25,398 44,020 41,233 33% 129,840 19,046 24,248 43,606 42,940 30%
4
SPr+Sc+Pu 129,840 21,032 3981 43,182 61,645 - 129,840 20,867 3981 43,346 61,646 -
12 × 6 × 5 1
SPr 94,105 10,766 17,638 32,658 33,043 45% 94,105 11,096 16,654 25,400 40,955 31%
2
SPr+ Sc 94,105 12,064 2304 28,892 50,845 15% 94,105 11,870 2567 27,890 51,778 13%
SP3r+Pu 94,105 12,220 20,148 18,864 42,873 28% 94,105 12,134 19,546 18,514 43,911 26%
4
SPr+Sc+Pu 94,105 13,560 2658 18,182 59,705 - 94,105 13,474 2658 18,267 59,706 -
12 × 6 × 6 1
SPr 108,450 13,571 21,084 52,814 20,981 66% 110,230 14,122 21,304 46,054 28,750 54%
2
SPr+ Sc 108,450 15,068 3386 47,661 42,335 32% 110,230 15,428 3379 40,679 50,744 19%
SP3r+Pu 108,450 15,377 25,814 26,385 40,874 34% 110,230 15,510 24,119 26,863 43,738 30%
SP4r+Sc+Pu 108,450 17,038 3676 25,794 61,942 - 110,230 16,920 3933 26,734 62,643 -
14 × 7 × 5 1
SPr 105,970 12,404 17,365 39,142 37,059 44% 105,970 12,944 21,152 31,419 40,455 39%
2
SPr+ Sc 105,970 13,881 3154 38,543 50,392 24% 105,970 14,378 2887 35,220 53,485 19%
SP3r+Pu 105,970 14,105 21,204 21,728 48,933 26% 105,970 14,004 24,442 21,378 46,146 30%
4
SPr+Sc+Pu 105,970 15,307 3551 20,925 66,187 - 105,970 15,246 3551 20,984 66,189 -

Table 11
The comparison of the results with the wholly integrated model under demand choice flexibility and stochastic demand.

Integration level Demand choice flexibility Stochastic demand

Aggregated Disaggregated AveDev% Aggregated Disaggregated AveDev%

1
SPr 56% 45% 50% 54% 45% 49%
2
SPr+ Sc 26% 22% 24% 25% 18% 22%
SP3r+Pu 23% 31% 27% 30% 29% 30%

uncertain demands. Generally, Lot sizing problems have a fairly high degree of uncertainty in real-world engineering envi-
ronments; 3. These models are applicable to situations in which a manufacturing company has several production lines and
the setups are complex such as dairy products companies and tile industries; 4. Based on the results, the model presented
in this study can be solved in a reasonable time, making it applicable to practical problems. Furthermore, the application
of aggregated model is more suitable for large-size industrial problems, because it can find the optimal solution more ef-
ficiently; 5. Unlike previous studies on production lot-sizing problems, this research also observes Material Requirements
Planning (MRP); 6. Applying these models, companies can obtain an indifference threshold of discount (considering other
purchase costs) for different suppliers and achieve a proper bargaining policy for working with multiple suppliers.
The major limitation of this research is the assumption that some parameters such as processing times, machine capacity
and so on are deterministic. Therefore, they can be investigated under uncertainty in future studies.

6. Concluding remarks and future research directions

In the present research, four MILP models are developed for integrated lot-sizing and scheduling problem with complex
setups that consider raw materials transportation by multiple modes and discount levels offered by suppliers. The proposed
formulation integrates the decisions of purchase lot-sizing, production lot-sizing and scheduling, while these decisions are
taken separately in traditional environments.
In this study, two types of mathematical models (aggregated and disaggregated) are developed for the problem to eval-
uate and compare the computational efficiency of them under deterministic and stochastic demands and provide some
managerial insights. To deal with the stochastic demands, Chance-Constrained Programming (CCP) approach is applied. The
models are coded in the CPLEX 12.6 environment and some numerical experiments are studied to represent the efficiency
of the solutions and models. Examinations represent that problems of reasonable sizes in various conditions can be solved
by a MIP solver. The results indicate the supremacy of the aggregated formulation over the disaggregated model in terms of
computational efficiency. Based on the results of this study, the average profit of the separated (purchase from production)
2
lot-sizing model (SPr+ ) under demand choice flexibility and stochastic demand is 24% and 22% less than the integrated
Sc
model, respectively
Furthermore, the results of this study verify the impact of discounts on the production, purchase, revenue and cost
levels. Consequently, the decision-making on procuring and lot-sizing in multi-supplier environments should be done in an
integrated manner to explore the appropriate discounts of suppliers, efficiently.
 M. Mohammadi, M. Esmaelian and A. Atighehchian / Applied Mathematical Modelling 84 (2020) 1–18 17

To the best knowledge of the authors, the present study is the first attempt to investigate the integrated multi-period
and multi-level mathematical model for the purchase lot-sizing problem under demand uncertainty which can consider
supplier selection with different levels of discount and some other real-world conditions and also observe Material Require-
ment Planning. Future studies may propose an appropriate metaheuristic algorithm based on the presented assumptions
and conditions to solve problems of large sizes more efficiently. Opportunities for future studies can be found by extending
the assumptions of the model for embracing some other practical conditions such as restrictions in lots transportation, limi-
tation in buffer space, perishability of materials, earliness and tardiness costs, backorder costs, considering another discount
structure (like incremental or bundled), and extending the introduced models to more complex situations such as job shop,
flow shop and open shop. Furthermore, proposed models only seek to maximize the buyer’s profit. However, maximizing
the profits of the entire supply chain through coordination and collaboration between the buyer and suppliers can be an
interesting topic.

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