Developing optimization models for cross-functional decision-making: Integrating marketing and production planning

Although the lately evolved enterprise resource planning systems provide a unified platform for managing and integrating core business processes within a firm, the decision-making between marketing and production planning still remains rather independent. It is due in large part to the inherent weaknesses of ERP such as fixed and static parameter settings and uncapacitated assumption. To remedy these drawbacks, we propose decision model that solves optimally the production lot-size/scheduling problem taking into account the dynamic aspect of customer's demand and the restriction of finite capacity in a plant. The joint decision model is developed based on the inventory followed by shortages (IFS) inventory policy. The model is practical and can possibly be used as an add-on optimizer like an advanced planning system in ERP framework that coordinates distinct functions with an aim at maximizing the total profit of a firm. In this study, two versions of the model, i.e., the decentralized and the coordinated decision-making policies, were derived. They were solved by using dynamic programming technique combined with iterative search. In addition, numerical study was carried out, comparative experiment was conducted, and sensitivity was analyzed with respect to major parameters.