Joint pricing and production planning for fixed priced multiple products with backorders

Lou Caccetta; Elham Mardaneh

doi:10.3934/jimo.2010.6.123

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2010, Volume 6, Issue 1: 123-147. Doi: 10.3934/jimo.2010.6.123

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Joint pricing and production planning for fixed priced multiple products with backorders

Lou Caccetta^1, and
Elham Mardaneh^1,

1.
Western Australian Centre for Excellence in Industrial Optimisation, Department of Mathematics and Statistics, Curtin University of Technology, GPO Box U1987, WA, 6845

Received: March 2009

Revised: August 2009

Published: January 2010

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Abstract

In this paper, we present a multiperiod model for production planning in a make-to-stock manufacturing system with constant pricing. We consider a multiproduct capacitated setting and introduce a demand-based model where the demand is a function of the price. There is an assumption that the production setup costs are negligible. A key part of the model is that backorders are allowed. As a result of this, the problem becomes a non linear programming problem with the nonlinearities in both the objective function and some constraints. We develop an algorithm that computes the global optimal production and pricing policy on a finite time horizon. We illustrate the application of the algorithm through a detailed numerical example.

Keywords:

Production Planning,
Pricing,
Coordination of Marketing and Operations Decisions.

Mathematics Subject Classification: Primary: 90B30, 80M50; Secondary: 90B50.

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