DETERMINISTIC DYNAMIC PROGRAMMING

INVENTORY MODEL

Instructions:
. Solve the following problems considering the use of recursion in dynamic programming.

PROBLEM 1
A company has the following demand data for its product: My Demand
1 1
2 3
3 2
How many units should be produced in the month? Knowing that: 4 4
During the month that some units are produced, a fixed cost of $30 is incurred.
The variable cost is $10 for each unit produced.
At the end of each month, a storage cost of $5 is generated for each unit.
Capacity limitations allow a maximum production of 5 units.
The size of the warehouse restricts a maximum final inventory of 4 units each month.
0 units are available at the beginning of the first month.

Characteristics:
The demand for each month is known at the beginning of month 1.
It is necessary to determine how many units should be produced considering that the
manufacturing capacity is limited.
The demand of each period must be met on time with the inventory or the
current production. During each period where production takes place, a is generated
fixed cost, as well as a variable cost per unit.
There is limited storage capacity. A storage cost is incurred.
per unit to the final inventory of each period.
The objective is to minimize the total cost by meeting the demand for each period.

Periodic review model: The inventory is known at the end of each period, and a decision is made.
about production.

Solution:
Sean:
xnthe level of production in month n
ynthe initial inventory in month n
dn the demand in the month n

CP(xnthe production cost of xn units, CP(xn=30+10xn

What I have in stock next month will be what I produced plus what I had in inventory minus the demand.
of that month: andi+1= yi+ xi- di; then CI(yi+1)=5(yi+ xi- di)

Recursive function: Minimum cost to fulfill demands fn(sn,xn) = min {CI(yn+1) + CP(xn) + fn+1(sn+1)}

1
 Stage 4 (demand=4)
f4(s4,x4=30+10x4 Optimal solution
s4x4= 0 x4= 1 x4= 2 x4= 3 x4 = 4 f4*(s4) x4*
0 - - - - 30+40 70 4
1 - - - 30+30 - 60 3
2 - - 30+20 - - 50 2
3 - 30+10 - - - 40 1
4 0+0 - - - - 0 0
Sn: warehouse availability

Stage 3 (demand=2)
Solution
f3(s3,x3)=5(y3+x3-d3+30+10x3+f
* 4(y3+x3-d3)
optimal
s3 x3= 0 x3= 1 x3= 2 x3= 3 x3= 4 x3= 5 f3*(s3) x3*
0 - - 0+50+70=120 5+60+60=12510+70+50=13015+80+40=135 120 2
1 - 0+40+70=110 5+50+60=11510+60+50=12015+70+40=12520+80+0=100 100 5
2 0+0+70=70 5+40+60=10510+50+50=11015+60+40=115 20+70+0=90 - 70 0
3 5+0+60=6510+40+50=10015+50+40=105 20 + 60 + 0 = 80 - - 65 0
4 10+0+50=6015+40+40=9520+50+0=70 - - - 60 0

Stage 2 (demand=3)
Solution
f2(s2,x2=5(y2+x2-d2)+30+10x2+f
* 3(y2+x2-d2)
optimal
s2 x2= 0 x2= 1 x2 = 2 x2= 3 x2= 4 x2= 5 f2*(s2) x2*
0 - - - 0+60+120=180 5+70+100=175 10+80+70=160 160 5
1 - - 0+50+120=1705+60+100=16510+70+70=15015+80+65=160 150 4
2 - 0+40+120=1605+50+100=15510+60+70=14015+70+65=15020+80+60=160 140 3
3 0+0+120=1205+40+100=14510+50+70=13015+60+65=14020+70+60=150 - 120 0
4 5+0+100=10510+40+70=12015+50+65=13020+60+60=140 - - 105 0

Stage 1 (demand=1)
Solution
f1(s1,x1=5(y1+x1-d1+30+10x1+f
* 2(y1+x1-d1)
optimal
s1x1= 0 x1= 1 x1= 2 x1= 3 x1= 4 x1= 5 f1*(s1) x1*
0 - 0+40+160=2005+50+150=20510+60+140=21015+70+120=20520+80+105=205 200 1

PROBLEM 2
A company builds commercial airplanes for various airlines around the world. The
The final stage of the process involves the manufacturing of the turbine engines and their installation in
the structure of the airplane. The company has to deliver, soon, a large
number of airplanes and, for this reason, wishes to schedule the production of the engines of
turbine for the next four months.

The following table shows, for each of the next four months, the amount of
engines that must be ready for installation, the maximum production capacity of
that month, the unit cost of manufacturing each engine (which can vary from month to month due to the
personnel needs, changes in material prices, energy consumption,
etc.), and the cost of storing an engine for a month (in this case, the cost is always fixed of
$15000 per engine.

2
 Production Facilities Unit cost Unit cost
Month
scheduled maximum production* storage*
1 10 25 1.08 0.015
2 15 35 1.11 0.015
3 25 30 1.10 0.015
4 20 10 1.13
cost given in millions of $.

Given the variations in production costs, it might be worth manufacturing some.