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The Simultaneous Planning of Production, Capacity, and Inventory in Seasonal Demand Environments

James R. Bradley^1,2; Bruce C. Arntzen³

¹ Cornell University · ² SC Johnson (United States) · ³ Global Supply Chain Associates, 6 Mockingbird Lane, Maynard, Massachusetts 01754-2254

Manufacturing managers often address capacity and inventory decisions separately, thus ignoring the interaction between capacity and inventory within a manufacturing system. The separation of these two decisions can lead to an imbalance of capacity and inventory investment. We develop a model that simultaneously plans capacity investment, inventory investment, and the production schedule using return on assets as the objective to maximize. An algorithm is developed that optimizes a fractional objective function for a mixed-integer program. The model was applied at an electronics manufacturer and at a manufacturer of office supplies.

DOI

10.1287/opre.47.6.795

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