COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 23

"Programming of Economic Lot Sizes"

Alan S. Manne

January 1957
Revised April 1957

This paper studies the planning problem faced by a machine shop required to produce many different items so as to meet a rigid delivery schedule, remain within capacity limitations, and at the same time minimize the use of premium-cost overtime labor. It different from alternative approaches to this well-known problem by allowing for setup cost indivisibilities.

As an approximation, the following linear programming model is suggested: Let an activity be defined as a sequence of the inputs required to satisfy the delivery requirements for a single item over time. The capacity input coefficients for each such activity may then be constructed so as to allow for all setup costs incurred when the activity is operated at the level of unity or at zero. It is then shown that in any solution to this problem, all activity levels will turn out to be either unity or zero, except for those related to a group of items which, in number, must be equal to or less than the original number of capacity constraints. This result means that the linear programming solution should probide a good approximation whenever the number of items being manufactured is large in comparison with the number of capacity constraints.