European Journal of Operational Research 53 (1991) 131-148

North-Holland

131

Theory and Methodology

Multilevel capacitated lotsizing complexity

and LP-based heuristics
Johan Maes

Kathofieke Universiteit Leuven, Division of Industrial Management, Leuven, Belgium

J o h n O. M c C l a i n

Cornell University, Johnson Graduate School of Management, Ithaca, N Y, USA

Luk N. Van Wassenhove

Erasmus University Rotterdam, Econometric Institute, Rotterdam, Netherlands

Received May 1989: revised December 1989
Abstract: This paper presents the first heuristics capable of solving multilevel lotsizing problems with
capacity constraints on more than one level. Moreover, the form of the heuristics is quite general so that
they can easily be extended to solve a variety of problems. If one wants to solve these problems on a
routine basis in a real environment one needs to find fast and easy algorithms. However, we show that for
certain problem classes this is a very difficult task, far more difficult than has been suggested in the
literature. For problems with setup times we show that finding a feasible solution is NP-complete. Even
without setup times testing for feasibility can be very difficult. Just how time consuming such heuristics
must be is demonstrated. This leaves little chance to build fast and easy heuristics except for the most
simple cases. Our exploration of the complexity issues points to mathematical programming as a potential
source of heuristics for these problems. This paper presents a new and general approach based on
rounding an LP solution for the problem without setup times. The methods use different information and
patterns evident in the LP solution are explored. The approach is tested on a large set of problems. The
main contributions of this paper are the way in which we distinguish between the easy and hard lotsizing
problems, the LP-based heuristics and the test set of capacitated multilevel lotsizing problems.
Keywords: Production planning, linear programming, heuristics

1. Introduction

A multilevel production environment occurs when several production stages are to be planned (or
scheduled) simultaneously. Choosing lot sizes in such a system with limited capacity is a complex task. The
multilevel capacitated lotsizing problems most commonly dealt with in the literature are a simplification of
reality and can be described as follows:
* Present address: INSEAD, Fontainebleau, France.
0377-2217/91/$03.50 ~ 1991 - Elsevier Science Publishers B.V. (North-Holland)

J. Maes et al. / Multilevel capacitated lotsizing

132

given the external d e m a n d for N items over a time horizon of T periods, find the solution which
minimizes total setup and holding cost, without violating the following constraints:
backlogging of end items is not allowed,
- an item can be produced when all required c o m p o n e n t s are available,
- there are resources with limited capacity which must be respected,
each time an item is produced, a setup cost has to be paid and (in some cases) setup time is lost,
- holding cost is calculated based on the end of period inventory.
Mathematically this can be stated as follows:
-

Problem C L S P
N

min

(1)

E E (s,Y~, +hili, )
i=1 t = l

s.t.

Ii.1

1 ~- Xit -- lit = dit +

Y'~ rijxl,,

i=I,...,N,

t=l,...,T,

(2)

jES(i)
N

E(a~xi,+A~Y~,)~C, k,

k=l

. . . . . K, t = l . . . . . T,

(3)

i=1

x,,<~BY,,
x,,, I , > 0 ,
~,~(0,1},

i = 1 . . . . . N, t = l
i=l,...,N,

. . . . . T,

t = l . . . . . T,

i = 1 . . . . . N, t = l . . . . . T,

(4)
(5)
(6)

where
a,k
A)
di,
si
h,
C,~
B

S(i)
N
T
K

r,j
x,
I,
Y,,

=
=
=
=
=
=
=
=
=
=
=
=
=
=
=

the capacity needed on resource k to produce one unit of item i.

the setup time or fixed loss of resource k incurred in preparation for production of i.
the external d e m a n d for item i in period t.
the setup cost for item i.
the cost to keep one unit of i in inventory for one period.
the available capacity of resource k in period t.
big number.
the set of successors of item i (S(i) = 0 if i is an end item).
the n u m b e r of items.
the n u m b e r of time periods.
the n u m b e r of resources.
the n u m b e r of units of item i required to produce one unit of j.
the a m o u n t of item i produced in period t.
the inventory of item i at the end of period t.
a binary setup variable indicating whether p r o d u c t i o n is allowed for i in t or not.

As we will show in the following sections, additional complications make the problem m u c h more
difficult than the generic formulation suggests. On the other h a n d introducing constant leadtimes or
transfer times when moving from level to level does not considerably change the complexity of the
problem, as long as these move times remain independent of actual shop load. They may however
introduce some period zero infeasibilities.
Figure 1 gives an example of such a general model and will be used to explain some definitions. In this
example there are four end items (1 to 4) each with k n o w n external d e m a n d s ( d 1 to d4). F o r all
components (5 to 17), the dependent d e m a n d can be calculated from the p r o d u c t structure and the
successor's d e m a n d (e.g., 1 is the successor of 5). For c o m p o n e n t 8 there is also an additional independent
d e m a n d (ds). The product structure in Figure 1 is very general. There are a n u m b e r of assembly type
operations, series type operations as well as item commonalities (e.g., item 12 is used by 7 as well as 8).
There are three capacity constraints (A, B and C) as indicated by the boxes in the figure. The first two

133

J. Maes et al. / Multile~,el capacitated lotsizing

dl

d2

d3

d4

~8
"

II

III

Figure 1. Schematic problem representation

constraints (A a n d B) b o t h cover only a single stage of the p r o d u c t structure, while the third capacity
c o n s t r a i n t (C) c o n t a i n s items in different stages of p r o d u c t i o n (e.g., items 12 a n d 17). For the sake of
completeness T a b l e 1 gives a brief review of different types of lotsizing algorithms. A more detailed review
was recently published b y Bahl et al. [3].
In the r e m a i n d e r of this paper we restrict ourselves to assembly type p r o b l e m s (i.e. no c o m m o n a l i t y )
with external d e m a n d for the M end items only a n d with no capacity c o n s t r a i n t s that cover multiple levels.
In the next section we discuss how most c o m m o n sense heuristics are built a n d what complications are
involved in finding a feasible solution when a d d i t i o n a l constraints are added to the problem. We prove
that finding a feasible solution is N P - c o m p l e t e for p r o b l e m s i n c l u d i n g setup times. Moreover for some
other problems the feasibility p r o b l e m is not trivial either, although not N P - c o m p l e t e . G i v e n this dilemma,
Table 1
Different lotsizing problems and algorithms to solve them
Single level

Multi level

Uncapacitated

Wagner and Within * [34]

Silver and Meal [30]
Least Unit Cost
Part Period Balancing

Afentakis et al * [1]
Rosling * [29]
Graves [19]
Blackburn and Millen [9]
Crowston and Wagner * [10]
Crowston et al. [11]
Love * [25]
Zangwill * [37]

Capacitated

Eppen and Martin * [15]

Barany et al. * [4]
Gelders et al. [18]
Dixon and Silver [12]
Lambrecht and Vanderveken [24]
Dogramaci et al. [13]
Karni and Roll [22]
Maes and Van Wassenhove[27]
Eisenhut [14]
Giinther [20]
Thizy and Van Wassenhove[32]
Bahl and Ritzman [2]

Billington et al. * [6]

Zahorik et al. [36]
Billington [5]
Lambrecht and Vander Eecken [23]
Blackburn and Millen [8]
Steinberg and Napier [31]
Williams [35]

indicates an optimal algorithm.

J. Maes et al. / Multilevel capacitated lotsizing

134

we develop heuristics based on rounding LP solutions which are capable of solving a large class of
different capacitated multilevel lotsizing problems. The final section of this paper is devoted to the
development of a large set of problems to test the efficiency of these heuristics. Given that no other
heuristics for the problem existed which could be used as a benchmark were available we opted for a set of
small test problems for which the optimal solution is known.

2.

Lotsizing

methods

If we want to solve complex lotsizing problems in real environments we need to use fast and simple
heuristics. This is particularly true if this lotsizing procedure is only part of a larger system such as for
instance MRP. For the single level capacitated lotsizing problem, heuristics have already shown to produce
good results [33]. They are for most environments the only realistic approach.
2.1. Common sense heuristic

When designing heuristics for an optimization problem, one can basically distinguish between two main
approaches. The first group of methods is based on optimization theory and is in one way or another a
truncated or accelerated version of the true optimization algorithm. The advantages of this approach are
that the method is in general quite reliable, it is easy to determine bounds on the obtained solution, etc. On
the other hand, this technique requires mathematical insight and can be quite complex. Examples of such
heuristics for lotsizing are, e.g., the Lagrangean heuristic developed by Thizy and Van Wassenhove [32]
and the network based approach by Zahorik et al. [36].
The second way to develop heuristics is to apply a set of common sense rules to the problem. These
rules can be based on insights into the problem (as is the case in most heuristics) or on randomisation as is
the case in simulated annealing. The advantages of this second approach mainly come from practical
observations. These heuristics are generally quite fast and fairly transparant to the user.
Let us now focus our attention on common sense heuristics for capacitated lotsizing problems. Most
heuristics of this type work in very much the same way. Basically one can distinguish between three main
steps:
- A step aimed at reducing costs through batching into larger lotsizes (i.e. trying to save expensive setups
by paying a small amount of holding cost). Actually this is the body of the heuristic.
- A step to guarantee a feasible solution when the algorithm stops. This step is needed for two different
purposes: (1) to make sure that a feasible solution is created at the end of the algorithm even if no moves
have been suggested by the first step, and (2) one needs to preserve feasibility of a partial solution during
the batching step.
- An optional improvement step to perturb the solution and make additional savings based on small
changes to the basic solution.
In order to build this kind of heuristic, one must be able to check quickly whether proposed batchings
of demand are feasible or not. In other words the existence of a fast feasibility routine is essential to the
design of these heuristics.
2.2. Complexity of heuristics

The main purpose of this section is to classify the complexity of the feasibility ensuring step for
different lotsizing problems. The classification will tell us how difficult it is to design common sense
heuristics for these problems. Mathematically the feasibility problem can be stated as:
Given an instance of the capacitated lotsizing problem, i.e. a demand matrix, a set of capacity constraints
and product structure, does this problem have a solution?

The complexity of the capacitated lotsizing problem itself has been studied extensively [7,16]. The
feasibility problem on the other hand has not, except for a few simple cases.

J, Maeset al. / MultileeelcapacitatedIotsizing

135

2.2 1. Complexity determining attribute: setup times

The following two lemmas permit classification of the feasibility step of different lotsizing problems
into two distinct classes. It is first shown that feasibility can be checked in polynomial time for all
problems which do not include setup times. The second lemma shows that the feasibility problem for
lotsizing problems which consider these setup times explicitly in the formulation is NP-complete and hence
no easy method to check feasibility is available.
Lemma 1. The complexity of the feasibili O, problem for capacitated Iotsizing problems which do not include

setup times is in P.
Proof. Consider the following generic lotsizing algorithm:
Step 1: Set all setup variables II,,,= 1 (for all i, t).
Step 2: Solve the system of inequalities given by the constraints defined by problem CLSP.
Step 3: If this system has a solution, the problem is feasible and a solution is found. Otherwise no
solution exists and the problem is infeasible.
Since only the feasibility problem is considered costs are not important for the final solution and setup
costs can be disregarded. Putting all Y,, to 1 does not consume capacity given the zero setup times. This
yields a system of linear inequalities ( A x <~b). Solving such a system (Step 2) is no more difficult than
solving the linear programming problem:
min

x0

s.t.

x o + Ax <~b.

It is known that any linear programming problem can be solved in a running time bounded by a
polynomial function of the problem size (e.g. using Karmarkar's algorithm [21]). Hence finding out
whether a problem without setup times has a solution is in P. []
Lemma 2. The feasibility problem for capacitated lotsizing problems with nonzero setup times is NP-complete.

Proof. It is easy to see that the problem is in NP since a non-deterministic algorithm only needs to guess a
production plan, which can afterwards be checked for feasibility in polynomial time.
We prove that the problem is NP-complete by a reduction to the 3 partition problem which is known to
be NP-complete (Garey and Johnson [17]).
The 3 partition problem can be stated as:
Given a set S of 3N elements, a bound B >/0 and a size d i >/0 for each element of S, such that ]B < d i < B
and such that Y~,~ sd, = NB, does there exist a partitioning of S into N disjoint sets S l, S 2. . . . . SN such
that for 1 ~ j <~N, ~ , ~ s d , - - B? (Note that each Sj must therefore contain exactly three elements from S.)
Consider on the other hand the following lotsizing problem:
Given 3N items and N time periods, let d , = 0 for all i and t = 1. . . . . N - 1, while diN = d,. Moreover let
~ t = l ..... 3NY~t=I
Nd, = NB and each d, in the range between B and B. Each item has a setup time
equal to A > B, while the capacity in each period is B + 3A.
It is clear that each instance of the 3 partition problem can be viewed as an instance of this lotsizing
problem. Note that, given the capacity constraints, each item can be setup only once over the total horizon,
otherwise infeasibilities will occur.
.

Total capacity = ( B + 3A ) * N,
Total production = NB,
Total capacity left for setup = 3AN.
Hence each solution to the lotsizing problem also gives a solution to the 3 partition problem, which proves
the NP-completeness of the feasibility problem for lotsizing with equal setup times. []

J. Maes et aL / Multilevel capacitated lotsizing

136

Combination of these two lemmas yields the following theorem:

Theorem 1. The feasibility problem for capacitated lotsizing problems which do not include setup times is in P.
I f setting up machines consumes limited resource, the feasibility problem is NP-complete.
Theorem 1 has important implications for the design of heuristics. If setup times are present, a simple
'common sense' algorithm cannot guarantee a feasible solution to all problem instances. This is probably
the main reason why one finds very few articles on lotsizing with setup times although this problem is
certainly as important as lotsizing with setup costs. In many cases setup costs are viewed as a Lagrangean
substitute for setup times which allows one to develop valid schedules or an otherwise very hard problem.
2.2.2. Capacitated lotsizing - with zero setup times
Although ensuring feasibility for problems without setup times is in P, this does not mean that all
different problem types in this class are equally easy. Note that the proof of Lemma 1 uses LP to find a
feasible solution. Solving an LP problem may require considerable time. For a number of special cases a
faster noniterative approach can be used.
A. Single level, single constraint. This is one of the easiest problems for which a closed form formula can be
defined. Dixon and Silver [12] proved that feasibility can be checked using the following formula:
N

a,dim <-% Y', Cm for all t.

m=l

i=1

(7)

m=l

If this condition holds for all periods a feasible solution exists.

B. Multilevel systems with serial product structure. Here we must distinguish between different types of
problems. For the case of uniform processors (i.e. when the capacity absorption is proportional at every
level of the product structure, a im - a"ai with o/m independent of the item), an extended approach similar
to the one in the previous section can be used. It is shown in [26] how simple heuristics can be developed
based on these formulas.
For problems with random capacity absorption (i.e. random processors), although checking feasibility
belongs to P, application of an iterative algorithm is required. Hence computational requirements will at
least be an order of magnitude higher than for the previous class. See [26] for more details.
As of yet for all the other problems, no non-iterative algorithm has been found. To resolve the
feasibility problem would require application of an LP-like algorithm comparable to the one used in the
proof of Lemma 1. One should bear in mind that this LP problem would have to be solved at every
iteration of a heuristic. The following are some examples of problems in this group:
multiple levels ( > 2) with random processors,
multiple constraints (>~ 2) for single level problems,
general time variable capacity absorption,
- any combination of the above problems.
So far we discussed the use of simple common sense heuristics for multilevel multicapacitated problems.
It was shown that the development of such heuristics is not obvious at all, and for most problem types
probably even very unlikely. Extending existing single level heuristics is not a simple matter contrary to
what most authors state. Optimisation algorithms on the other hand are too slow to solve problems on a
routine basis. In the remainder of this paper we take a middle ground between optimisation and common
sense heuristics by developing a set of heuristics based on rounding the solution of the LP relaxation of the
problem.
-

J. Maes et al. / Multilevel capacitated lotsizmg

137

3. LP-based heuristics

In this section, new heuristics are developed for the multilevel capacitated lotsizing problem with zero
setup times. Linear programming was chosen as a basis for the methods because it inherently captures
three very important elements of the problem: links across levels, links between time periods and shared
capacity. Equally important, LP codes are readily available in most computer centers. Finally LP models
can easily be adjusted when additional constraints apply. Unfortunately, without restricting some of the
variables to be integer, setup costs cannot be correctly modeled in an LP formulation. Our approach is to
try to round the obtained LP solution using insights into the problem structure.
Before the different heuristics are defined some introductory remarks may be needed to justify this
approach. Referring to the literature review of the single level case, one could argue that there may be
other (and faster) methods to solve these multilevel capacitated lotsizing problems. However the complexity of the multilevel problems prevents one from using these other approaches effectively. Consider the
relaxation algorithms presented for the single level capacitated lotsizing problem (e.g., Thizy and Van
Wassenhove [32]). If one applies Lagrangean relaxation to the capacity constraint, the problem decomposes in N single item uncapacitated lotsizing problems. These problems can be solved quite efficiently using
the dynamic programming approach of Wagner and Whitin [34]. When setup variables are fixed (as in the
primal part of the TVW algorithm), the problem can be reformulated as a transportation problem, and the
extreme flows can be found quite efficiently. For the case of single level capacitated lotsizing problem, the
primal as well as the dual problems can be solved to optimality quite fast using the special structure of the
problems.
Suppose now that we want to use a similar approach for the multilevel case. When capacity constraints
are relaxed in a Lagrangean fashion, they enter as production costs in the objective function. The problem
then decomposes in M single (end) item, multilevel uncapacitated lotsizing problems. The objective then is
to minimize a function which includes time dependent production costs. However as of yet there is no
efficient algorithm to solve these types of problems. Suppose on the other hand that one relaxes the
constraints which link the items across levels. In this case one obtains a number of single level capacitated
problems and these are of course hard to solve.
Consequently, if one wants to obtain subproblems which can be solyed efficiently, both the capacity
constraints and the multilevel constraints have to be relaxed. This is exactly the approach taken by
Billington [5] to solve the problem with a single bottleneck. Consider again the primal problem and
suppose the setups are specified. Even this simplified version of the original problem remains quite
complex since no special structure can be found for which efficient algorithms exist. Hence if one wants to
obtain primal solutions, a general LP problem has to be solved. Consequently a monolithic LP approach
will probably work more efficiently than these repeated applications of LP codes with fixed setups.

3.1. Simple plant location model

A model based on the simple plant location formulation of the capacitated lotsizing problem is used.
The model bears some resemblance to the one used by Rosling [29] in his algorithm for the multilevel
uncapacitated lotsizing problem. This model was chosen over other (more compact) representations of the
problem, because it showed the best behaviour in multilevel environments given the Lindo LP code we
used.
In the mathematical formulation below we assume without loss of generality that the technological
coefficients r,j are equal to one.
model (SPLS)
N

min

E 52 52
t=l

"r=l t=7

E E s,r,,
t-I

"r=l

(8)

J. Maes et al. / Multilevel capacitated lotsizing

138

s.t.

Y~xi~,=l,

i = 1 . . . . . N, t = l . . . . . T,

(9)

r=l
t

Y'~xi,,>~ Y'~xs(i,,t,
"r=l
N

E
i=1

i = 1 . . . . . N, t = l

. . . . . T,

(10)

"r=l
T

Eakid,,x,,,<~C~ k,

k = l . . . . . K t = l . . . . . T,

(11)

r=t

xi,,~<Y,,,

xi,t>~O,

i = 1 . . . . . N, ~ ' = 1 . . . . . T, t=~" . . . . . T,
i = 1 . . . . . N, ~ ' = 1 . . . . . T, t=~" . . . . . T,

Y,,~{0,1},

i = 1 . . . . . N, ~-=1 . . . . . T,

(12)
(13)
(14)

where
S(i)
Xi~.t
Cirt

= the set of successors of item i.

= the proportion of period t d e m a n d p r o d u c e d in period ~- for item i.
= the holding cost associated with xi, t and all other variables defined as before (ci, t = h i ( t - ,r).
xi~ ~ d , ) .

Although (SPLS) is rather large in its general form, for certain specific problems a n u m b e r of reductions
and improvements can be made. For the special case of capacitated lotsizing (single level or multi level)
the n u m b e r of variables and constraints can be limited based on Proposition 1 (below). Also a n u m b e r of
additional constraints can be added to strengthen the LP lower bound. For ease of notation we will
consider only a single capacity constraint.

Proposition 1. An upper bound on the total inventory for item i (measured in capacity units) that can be built
up by the end of period t is given by
M . . . . i,t = min aidi,t+l,T,

Cm m=l

ajdj,~ .

j=l

m=l

where d,.t+l,r is the demand from period t + 1 up to period T included.

Since each production variable is also linked to a setup enforcing constraint (12), this property also
reduces the n u m b e r of constraints. N o t e that the tighter the p r o b l e m is capacitated, the fewer variables are
needed. Moreover if certain entries in the d e m a n d matrix are zero, the associated variables and constraints
(9) can also be d r o p p e d from the formulation. That is suppose dit = 0; then all xi~ t for ~"-%<t can be
omitted. For practical applications, one might consider reducing the n u m b e r of variables xi.. even further
based on c o m m o n sense considerations, e.g., to avoid ' l o n g distance' production.
If one looks carefully at previous results of capacitated lotsizing algorithms using IP techniques [4,15]
the most difficult problems appear to be those in which the capacity constraints are very tight. One reason
for this is that most of these methods do not take into account any problem specific capacity considerations. However additional constraints based on the capacity profiles are easy to define.
Call Q, the ordered set of d e m a n d s (in capacity units) for the next period, i.e. Q, = {ajd~.,+ 1 I j =
1 . . . . . N and aldl.,+ 1 <~a2d2.t+ l -%< ) and Qmt the maximal subset of Qt that can be p r o d u c e d entirely
in the remaining cumulative slack capacity of period t, after all the d e m a n d up to period t has been
fulfilled. That is, if we use the same symbol Qmt for the subset and the sum of d e m a n d s in the subset,
N

Q m t G Q t l Q m t + a j d j . t + l > Y'~ Cm-- E

m=l

i=1

m=l

aidim

forallj~Qt/Qmt.

J. Maes et al. / Multilevel capacitated lotsizing

139

Proposition 2. A valid constraint for the problem is:

N

~ ~,,+, > ~ N - IOm, I

(15)

-1

with I Qm,
t+l.

the cardinality of the set Qm,. Note that I Qm,

includes all items with zero demand in period

A proof is given in [26].

3.2. Rounding procedures

In this section we develop a number of rounding heuristics which start from the solution to the LP
relaxation of problem (SPLS). Rather than using sophisticated mathematical techniques, these heuristics
try to find a solution based on the structure of the problem. Three classes of heuristics are discussed.

Class 1: Single pass algorithm

The first algorithm (LPH1) works according to the following ideas: at each iteration of the algorithm
one setup variable is fixed. If the setup variable being fixed was integer in the LP solution, the algorithm
simply moves to the next iteration. However, if a non-integer setup variable is fixed to one, the LP
problem with this additional setup variable fixed is solved again starting from the previous solution, hence
requiring in general few pivots. Using this step by step approach, at each iteration some of the inventory
for item i may be shifted to the newly added setup, eventually creating new slack capacity in the periods
where this inventory is removed. Indeed, LP sees the setup cost as a production cost which increases
linearly as long as Y,, < 1 and drops to zero once Y,t = 1. This implies that for certain items it seems to LP
that producing inventory is cheaper than adding the 'production cost' needed to raise Y~t. By forcing a
setup to one, this 'pseudo production cost' immediately becomes zero and it will become cheaper to
produce in period t itself rather than in any earlier period (provided that enough capacity is available)
since this will eliminate the holding cost.
Note that since setup variables can only be rounded up the algorithm will never arrive at an iteration
which yields an infeasible intermediate solution. Although setups are never explicitly forced to zero, some
of the fractional might be eliminated during the different iterations, thus reducing the number of setups.
LPH1: Single pass heur&tic

Step O. Solve the LP relaxation.

Step 1. Select a non-integer setup variable and fix it to 1. (In the implementation tested in this paper we
simply selected the largest non-integer; however one can think of many different variations some of which
are tested in [26].)
Step 2. Resolve the LP. If the resulting solution is all integer STOP, else go to Step 1.
Class 2." Multiple decision algorithm
The second class of algorithm (LPH2) is very much related to the previous one. However, rather than
treating each fractional setup independently, it considers sequences of fractional setups. It was observed
that for many capacitated problems, the suggested fractional setups are scattered throughout the complete
setup matrix. Moreover some of these fractionals come in series which sum to one in the LP solution,
whereas in the optimal solution, these fractional setups are often replaced by a single setup. The following
algorithm tries to fix fractional setups to integers not only by forcing them to one, but also by reducing
their number, forcing some of the fractionals to zero. Note that again different strategies can be used to
select the next group of fractionals.

J. M a e s et al. / Multilevel capacitated lotsizing

140

This algorithm treats the different levels starting from the most constrained level (defined as the level
with the highest ratio of total demand to the total available capacity) and ties are broken arbitrarily. On
each level the items are treated in order of nonincreasing setup cost s;. As long as the setup matrix is not
completely integer the different steps of the algorithm are repeated.

LPH2: Fix chains of setups

Assume levels have been reordered such that level 1 is the most constrained level and items are
reordered on each level in decreasing order of their setup costs. LP denotes the LP relaxation of the
problem.

Step O. Solve LP. Set level = 1, item i = 1.

Step 1. Find Q = { ~ j l0 < Yq < 1, y ' ~ 2 j ~ / = 1, Jl and .]'2 as small as possible}. If IQ[ = 0 then go to
Step 4.

Step 2. Put Y,7 = 1 where Y/7 = max( Y/j I Y,j ~ Q }- If I Q I = 2 and J2 =Jl + 1 also put the second
fractional Y,j variable = 0. Solve LP and go to Step 3. Else solve LP and go to Step 1.
Step 3. If the LP solution is infeasible or if

Y'

[g.tlaftr> E

n=l ..... i t=l ..... j

[Yn,] befre

n=l ..... i t=l ..... j

or if
s; *

(2

ybefre-tj, -

y before]ij2] < L p a f t e r

_ Lpbefore,

then delete the most recently added constraint which forced an Y~j to zero and resolve LP. Goto Step 1.
Step 4. Find j lY, j ~ {0, 1} and j as small as possible: if Yq ~< 0.5 then put Y,j = 0, solve LP and goto
Step 5; if ~ j > 0.5 then put Y,j = 1, solve LP and goto Step 1. If no such j is found then i = i + 1, if i > N
then level = level + 1 and i = 1. If level > L STOP. Else goto Step 1.
Step 5. If the LP solution is infeasible or if

E
n=l .....

/rntl
. r 1after

i t=l ..... j

>~

y"

y"

[Ynt] befre

n=l ..... i t=l ..... j

or if
Si * (1 -- ~j)

< L P after -

L P befre.

Replace the most recently added constraint which forced an ~ j to zero with ~ j = 1 and resolve LP. Goto
Step 1.
Step 1 searches for chains of Yq which sum up to 1. If two consecutive fractional ~ j are found the
smallest is forced to 0 and the largest to 1 in Step 2. Otherwise only the largest ~ j in the chain is forced to
1, leaving the others free. If no such chains were found, Step 4 searches for the first free setup variable for
the considered item and forces it to 1 or 0 depending on its fractional value being above or below 0.5. In
cases where some setup variables were fixed to 0, some additional checking is done in Steps 3 and 5. These
steps check whether feasibility remains guaranteed, whether the new rounded solution is cheaper than
before and whether it would not have been cheaper if this variable had also been forced to 1.

Class 3: Curtailed branch and bound

Any optimality seeking algorithm will probably take too much computation time to find an optimal
solution and prove its optimality. We therefore develop a faster way to limit the search among the
candidate solutions, but at the expense of losing the guarantee of finding an optimal solution. Although
many clever branch and bound algorithms could be thought of we present a very simple and straightfor-

J. Maes et al. / Multilevel capacitated lotsizing

141

ward one here. In our implementation a simple backtracking algorithm with a last in, first out strategy is
used which fixes setup variables in order of increasing product number and period over all levels.
Algorithm PBB:

Partial branch and bound

Step O. Solve the LP relaxation.

Step 1. Fix all integer setup variables in this solution to their respective values.
Step 2. Do a limited branch and bound on the remaining setup variables.
All three methods along with a model builder were integrated into the ' U S E R ' subroutine of LINDO and
can be obtained from the authors upon request.

4. Computationalperformance
In this section we will test our heuristics on a number of problems. Since until now, no other heuristics
or optimal algorithms have been developed for these types of problems, we opt for rather small problem
sizes. This allows us to compare the performance of these heuristics to optimal solutions. In a companion
paper we compare these LP based heuristics to common sense heuristics for some restricted problems [28].
The set of test problems considers only serial product structures.

4.1. Experimental design

In order to allow for an absolute comparison rather small problems were generated (all with three end
items and 10 time periods) since this allowed us to solve the problem to optimality using the MIP code of
LINDO.

Five different parameters were included in the experimental design. The number of levels ranged from
one to three with a capacity constraint at each level. Cost structures for all items (i.e. end items,
subassemblies and components) were chosen to reflect either low (L) or high (H) TBO values, where TBO
is defined as the average time between orders according to the classical EOQ lotsize formula. At each level
all possible cost structures were combined with all combinations at the other levels. Hence two different
combinations were generated for single level problems (L and H), 4 for two level problems (LL, HH, LH,
HL) and 8 for three level systems (LLL, LLH, L H L .... ). For each of these combined cost profiles, 3
replications were taken. Hence there are 3 , 2 L sets of cost data depending on the number of levels L.
Capacity absorption was either the same for all items (value 1; i.e. uniform processors) or randomly
selected (i.e. random processors). Capacity tightness as measured by total demand over total available
capacity is given four values, 95%, 75%, 50% and 1% or uncapacitated. For two level systems the available

Table 2
Summary of experimental design
No. of levels

Uniform processors

Random processors

1 level

6 cost sets
4 capacity profiles
PROB301

6 cost sets
4 capacity profiles
PROB301M

2 levels

12 cost sets
16 capacity profiles
PROB302

12 cost sets
16 capacity profiles
PROB302M

3 levels

24 cost sets
14 capacity profiles
PROB303

XXXXXXXXXXXXX

142

J. Maes et al. / Multilevel capacitated lotsizing

Table 3
Average CPU in seconds on VAX 11/785
LPH1

LPH2

PROB301
PROB301M

Problem

2.8
4.7

2.5
5.0

PBB
9.7
51.0

IP
18.4
214.8

PROB302
PROB302M

17.4
28.3

20.5
38.3

138.4
2603.7

441.9
6677.3

PROB303

45.2

55.9

1011.5

2935.5

capacity at level 1 compared to level 2 is either equal (11), has the bottleneck at the end items ( / \ ) or the
bottleneck at the components ( \ / ) . For the three level problems only hourglass profiles were tested, i.e.
with the bottleneck located at the middle level. Table 2 summarizes the experimental design. For three
level systems, the case of random processors was omitted due to computer time limitations. A more
detailed description is given in the appendix.
4.2. Discussion
4.2.1. Computational requirements
All problems were solved on a VAX 11/785 using the four algorithms described earlier. Table 3 gives
average CPU times in seconds for all algorithms.
A number of important remarks can be made. For the LP oriented heuristics the large difference in
CPU time between uniform and random processors can be explained by the width of the integrality gap
between the LP solution and the optimal solution. Whereas for uniform processors this gap is on average
2.28% and less than 5% for the most difficult problems, these values grow to 4.67% and 18% for random
processors. As a consequence there will be more noninteger values in the latter case hence requiring more
iterations of the algorithm. Note also that even for these small problems CPU times become excessively
large for PBB and the optimal solution method as the number of levels grows.

4.2.2. Solution quality

We next investigate the solution quality of the different algorithms as a function of the number of levels
and the capacity absorption coefficient. These two parameters were selected because of their specific
influence on the performance for multilevel problems.
>"
I-...I

<

I-13_

~1~

SINGLE LEVEL
TWO LEVELS

2
~

THREE LEVELS

0
rr
LL
Z

I--

>
l.iJ
o
LPH1

LPH2

PBB

HEURISTIC

Figure 2. Solution quality of heuristics - Influenceof the number of levels

143

J. Maes et al. / Multilevel capacitated lotsizing

>F-

-q
<
3

//~>5/
~'

O_

SINGLE LEVEL, UNIFORM PROCESSOR

WO LEVELS, UNIFORM PROCESSOR

SINGLE LEVEL, RANDOM PROCESSOR

o
~//~.' TWO LEVELS, RANDOM PROCESSOR

o
13Z
I.I.
Z

o
<

C3

LPHl-single level

LPH2-single level

LPH1 two Pevels

PBB-single tevef

LPH2-two levels

PBB-twe levers

HEURISTIC

Figure 3. Solution quality of heuristics - Influenceof the processor type

Figure 2 shows the influence of the number of levels on the quality of the solutions obtained for
uniform processors. Figure 3 on the other hand shows the effect of uniform and random processors. Again
averages are taken over all problems in each dataset.
PBB is in both cases the best algorithm, but very large CPU times were needed to obtain these
solutions. Although almost 1% worse on average, method LPH2 also looks very promising. It shows a very
interesting behaviour since the performance is hardly influenced by the problem structure as reflected by
capacity absorption coefficient and by the number of levels. It is very robust in this perspective. It is not
surprising that LPH2 does worse than PBB, since it only searches a very limited branch and bound tree
which is characterized by a one pass down with only a very limited number of backtracking passes (i.e. in
Steps 3 or 5 of LPH2).
Compared to the LPH2 algorithm, the related approach LPH1 behaves poorly although its behaviour is
also quite stable. More detailed analysis in [26] shows that in general LPH1 works fine for problems with
rather loose capacity constraints. Indeed in this case the LP solution will be almost all integer. Fixing the
fractional variables will make the entire solution near optimal. When capacity constraints are tight on the
other hand, this approach does not really work. In this case LPH2 shows far better results. Here a lot of
fractionals will be found and hence merely fixing them to one will make the solution much too expensive.
Apparently the more intricate pattern search for chains of setups is quite effective in this case.
Furthermore, these LP heuristics are virtually not influenced by the cost structure of the items, neither by
the capacity profile.

5. Conclusions

This paper discussed two main topics related to the capacitated lotsizing problem. The first part of the
paper discussed complexity issues for realistic lotsizing problems. We proved that the main complexity
factor for the design of heuristics is the occurrence of setup times. More specifically, if setup time
consumes part of the limited capacity, finding a feasible solution is NP-complete. Consequently designing
simple heuristics for this problem is very difficult, unless one allows the heuristic to stop without a
solution.
Checking feasibility for problems without setup times on the other hand, can be done in polynomial
time. However, as shown in Section 2, constructing a feasible solution can be quite intricate. For certain
problem classes (i.e. those which are most realistic: multilevel, multiple capacity constraints, assembly type

144

J. Maes et al. / Multilevel cupacitated lotsizing

of problem . . . . ) an iterative procedure may be needed for this purpose. Therefore, even for the so called
easy problems, simple heuristics may in fact become quite intricate and time consuming.
Based on these conclusions one might argue that one of the few alternatives remaining to solve these
problems is mathematical programming. In the second part of this paper we develop some heuristics based
on an LP formulation of the problem. The heuristics described in Section 3 try to curtail the enumeration
process, using information from the problem structure and LP relaxation of the model. Tests on small
problems show that these heuristics perform rather well under various circumstances.
Finally, we conclude that these heuristics are the first of their kind to solve multilevel lotsizing problems
with capacity constraints at multiple levels. The approach is very general in that a wide variety of different
lotsizing models can easily be solved by the same heuristics. Moreover the approach can be easily extended
to include additional constraints (e.g. aggregate inventory level).
Since up to now only small test problems have been solved some further research remains to be done.
First, the heuristics can be tested on larger problems taken from practical applications. The heuristics may
be improved by looking for other structural information or patterns in the LP solution. Finally the
complexity issue can be explored in more depth, trying to define more distinct classes such that it becomes
clear which specific lotsizing problems remain good candidates for heuristic development and which
problems should be solved based on mathematical programming based algorithms.

Appendix

Experimental design

The problems have the following characteristics:

- there are 3 end times each of which have a serial structure of L levels,
- each level is capacitated,
- demand is known for all end items over a given horizon of 10 periods,
- components do not have any outside demand.
The parameters which vary from dataset to dataset are: number of levels, cost structure, capacity
absorption coefficient and problem density, defined by total demand for capacity over total available
capacity. For each specific instance which can be created using these four parameters three replications
were considered by defining three different cost sets for each problem.
Demand set

Table A.1 presents the demand in units for the three end items. D e m a n d for each item was randomly
generated with a mean of 100. A different demand variability was chosen for each item.
Cost sets

Table A.2 presents 6 different setup cost sets. The first three sets in the table are data for low TBO
problems, while the last three cost sets result in a higher TBO. Note that since the systems under study are
serial and consequently have the same number of items on each level of the product structure, these cost

Table A.1
Demand set: 3 items - 10 periods
Period
item l
item2
item3

1
110
78
25

2
120
119
8

3
89
81
129

4
80
120
237

5
125
115
105

6
93
90
139

7
92
107
0

8
88
85
155

9
92
124
262

10
109
100
9

145

J. Maes et al. / Multilevel capacitated Iotsizing

Table A.2
Cost sets for 3 item problems. Echelon holding cost equal 1 for all items
Set1

L1

L2

L3

HI

H2

H3

item 1
item 2
item 3

52
88
76

92
83
105

78
53
90

160
230
310

220
280
190

205
210
290

Table A.3(a)
Capacities for single level problems
Prob. No.

Capacity

1
2

0.95 (T)
O.75 (M)
0.50 (L)

0.01 (U)

Table A.3(b)
Capacity profiles for two level problems
Prob. No.

Profile

Capacity level 1

Capacity level 2

1
2
3
4
5
6
7
8
9
1o
11
12
13
14
15
16

II
11
II
H
/\
/\
/\
/\
/\
/\
\/
\/
X/
\/
\/
\/

0.95 (T)
0.75 (M)
0.50 (L)
0.01 (u)
0.95 (T)
0.95 (T)
0.95 (Y)
0.75 (M)
0.75 (M)
0.50 (L)
0.75 (M)
0.50 (L)
0.01 (U)
0.50 (L}
0.01 (U)
0.01 (U)

0.95 (T)
0.75 (M)
0.50 (L)
0.01 (u)
0.75 (M)
0.50 (L)
0.01 (U)
0.50 (L)
0.01 (U)
0.01 (U)
0.95 (T)
0.95 (Y)
0.95 (Y)
0.75 (M)
0.75 (M)
0.50 (L)

sets can be used at any level. The table gives the setup cost to be used, while it is assumed that the echelon
holding cost for all items is set equal to 1 at each level. This results in TBOs from 1.02 to 1.50 for low cost
values and from 1.8 to 2.5 for high values.

Capacities
Tables A.3(a), A.3(b) and A.3(c) give the capacity profiles used for single, two and three level problems
respectively. For two level problems a symbolic representation for the relative availability of capacity for
the first and the second level is also given in the table. For three level problems, all generated cases have an
hourglass profile, with the most constrained level in the middle. Table A.3(d) indicates how the actual
capacity in each period can be calculated using the information in the tables.
For two level problems three possibilities for the relative capacity availability of level 1 over level 2 were
included (i.e. equal II, bottleneck at end level / \ and bottleneck at component level \ / ) . For three level

146

J. Maes et al. / Multilevel capacitated lotsizing

Table A.3(c)
Capacity profiles for three level problems
Prob. No.

Capacity level 1

Capacity level 2

Capacity level 3

1
2
3
4
5
6
7
8
9
10
11
12
13
14

0.01
0.01
0.01
0.50
0.50
0.01
0.01
0.01
0.50
0.50
0.50
0.75
0.75
0.75

0.50 (L)
0.75 (M)
0.75 (M)
0.75 (M)
0.75 (M)
0.95 (T)
0.95 (T)
0.95 (T)
0.95 (T)
0.95 (T)
0.95 (T)
0.95 (T)
0.95 (T)
0.95 (T)

0.01
0.01
0.50
0.01
0.50
0.01
0.50
0.75
0.01
0.50
0.75
0.01
0.50
0.75

(U)
(U)
(U)
(t)
(L)
(U)
(U)
(U)
(L)
(L)
(L)
(M)
(M)
(M)

(U)
(U)
(L)
(U)
(L)
(U)
(L)
(M)
(U)
(L)
(M)
(U)
(L)
(M)

Table A.3(d)
Calculation of actual capacity at each level
The value for the actual capacity used in the experiments was calculated using the following F O R T R A N formula:
capacity = AINT (total demand/(FLOAT(No, periods)* fraction) + 0.5), where
capacity
is the capacity in each period used in the experiment.
total demand is the demand over all periods and all items expressed in capacity units.
No. periods
is the number of periods in the problem.
fraction
is the value taken from tables A.3(a), (b) or (c).

problems on the other hand only an hourglass profile was used since all other situations are extensions to
two level problems.

Capacity absorption coefficient

Table A.4 gives the absorption coefficients used. There are only two different sets, the first one (U) with
identical coefficients for each item on each level and a second set with random capacity absorption
coefficients (R), such that the items have different capacity needs on each level. Due to the complexity of
the problem and limitations in computation times, three level problems with mixed capacity absorption

Table A.4
Capacity absorption coefficients
Set

item 1 at level 1
item 2 at level 1
item 3 at level 1

1
1
1

1
2
3

item 1 at level 2
item 2 at level 2
item 3 at level 2

1
1
1

2
3
1

item 1 at level 3
item 2 at level 3
item 3 at level 3

1
1
1

X
X
X

J. Maes et al. / Multilevel capacitated Iotsizing

147

coefficients were excluded from the tests, since these require large amounts of CPU times with their 90
integer variables.

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