Demand Selection and Assignment Problems in Supply Chain Planning
Abstract
Effective demand planning has recently become recognized as an important source of competitive advantage from both marketing and operations perspectives. The operations literature has often focused on pricing (revenue management) and information-based approaches (e.g., improved forecasting, mechanisms to elicit advance demand information) for integrated demand and production management. We can think of pricing, for example, as an implicit demand selection mechanism that determines the scope and scale of demands a supplier will ultimately serve, and that therefore drives the production requirements (as well as costs and revenues) that the supplier will face. In contrast, a variety of planning and design contexts involve a supplier or supply chain stage explicitly selecting a subset of demands from a collection of potential downstream demand sources. Such decisions on the demands a supply chain stage will serve may arise out of necessity (due to supply capacity limits), may be based strictly on economic considerations, or may be a component of the (assignment) decisions in a larger supply chain network design problem. Incorporating such dimensions of demand selection flexibility within supply chain planning models allows a supplier to best match available resources with downstream requirements, which can create opportunities for enhancing profitability. This chapter discusses a class of optimization models for addressing varying degrees of demand selection flexibility in integrated production and demand planning.
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