Integrated market selection and production planning: complexity and solution approaches

Wilco van den Heuvel, Erhun Kundakcioglu, Joseph Geunes, Edwin Romeijn, Thomas Sharkey and Albert Wagelmans

No EI 2007-45, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Emphasis on effective demand management is becoming increasingly recognized as an important factor in operations performance. Operations models that account for supply costs and constraints as well as a supplier's ability to in°uence demand characteristics can lead to an improved match between supply and demand. This paper presents a new class of optimization models that allow a supplier to select, from a set of potential markets, those markets that provide maximum profit when production/procurement economies of scale exist in the supply process. The resulting optimization problem we study possesses an interesting structure and we show that although the general problem is NP-complete, a number of relevant and practical special cases can be solved in polynomial time. We also provide a computationally very effcient and intuitively attractive heuristic solution procedure that performs extremely well on a large number of test instances.

Date: 2007-10-01
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