Collaborative marketing and production planning with IFS and SFI production styles in an ERP system

The latest manufacturing technologies, such as enterprise resource planning (ERP) system, enhance cross-functional interaction between manufacturing and marketing, but many production decision-making processes do not take marketing's dynamic nature into account. It is due in large part to the inherent weaknesses of ERP system such as the fixed and static parameter settings and uncapacitated assumption. To remedy these drawbacks, we propose two decision models that solve optimally the production lot-size/scheduling problem taking into account the dynamic aspects of customer's demand as well as the restriction of finite capacity in a plant. More specifically, we consider a single product that is subject to continuous decay, faces a time-varying and price-dependent demand, and time-varying variable production cost and production rate, with the objective of maximizing the profit stream over multi-period planning horizon. The problem is formulated as a dynamic programming model and solved by numerical search techniques. The main purpose behind this study is to propose a conceptual framework of a robust decision support system that can be served as an add-on optimizer like an advanced planning system in an ERP system. Special emphasis is placed on the comparative study between the proposed optimization models that are based on the inventory followed by shortages (IFS) and shortages followed by inventory (SFI) styles. Numerical result shows that the SFI style outperforms the IFS style in maximizing the total profit and minimizing inventory investment. Further, the percentage of profit difference between the two styles increases significantly in price-elasticity coefficient of the demand function as well as the production unit cost.