Integrating multi-period quantity flexibility contracts with a capacitated production and inventory planning

Kayhan, Mehmet
This research introduces a general approach for integrating a probabilistic model of the changes in the committed orders with an analytical model of production and inventory planning under multi-period Quantity Flexibility contracts. We study a decentralized structure where a capacitated manufacturer, capable of subcontracting, serves multiple contract buyers who actually perform forecasts on a rolling horizon basis. We model the evolution of buyers' commitments as a multiplicative forecast evolution process accommodating contract revision limits. A finite Markovian approximation to this sophisticated evolution model is introduced for facilitating the associated complex probability modeling. We implement computational dynamic programming and introduce an effective approach for reducing state-space dimensionality building upon our forecast evolution structure. Computational investigation demonstrates how the manufacturer benefits from the existence of order commitments and subcontracting option by analyzing the interplay of decisions.


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Citation Formats
M. Kayhan, “Integrating multi-period quantity flexibility contracts with a capacitated production and inventory planning,” Ph.D. - Doctoral Program, Middle East Technical University, 2008.