A hybrid heuristic for capacitated three-level lot-sizing and replenishment problems with a distribution structure

Abstract

We consider the capacitated three-level lot-sizing and replenishment problem with a distribution structure (3LSPD-C), recently proposed in the literature. In 3LSPD-C, a single production plant delivers items to the warehouses from where they are distributed to their corresponding retailers. There is a capacity on the total amount the plant can produce in each period, whereas there are no capacities on transportation. The goal of the problem consists in determining an integrated three-echelon production and distribution plan minimizing the total cost, which is composed of fixed costs for production and transportation setups as well as variable inventory holding costs. Additionally, we consider a generalization of the problem which also establishes storage capacities on the warehouses and/or retailers, given the importance of such characteristics in practical industrial and commercial environments. Such extension is denoted generalized capacitated three-level lot-sizing and replenishment problem with a distribution structure (G3LSPD-C). We propose a hybrid mixed integer programming (MIP) heuristic consisting of a relax-and-fix approach to generate initial feasible solutions and a fix-and-optimize improvement procedure grounded on varying-size neighborhoods to obtain high-quality solutions. Computational experiments are performed to analyze the potential cost reductions achieved using the new hybrid heuristic when compared with a state-of-the-art MIP formulation. The results show that the proposed hybrid heuristic can match or improve the solution quality obtained by the MIP formulation for the majority of the 3LSPD-C instances. Additionally, such superior behavior remains valid when the approaches are applied to the more general G3LSPD-C. Furthermore, we investigate the economic impacts of the storage capacities and how they affect the performance of our newly proposed hybrid heuristic.