Modelling and integration of customer flexibility in the order commitment process for high mix low volume production

Abstract

With increasing product variety and dynamic demand fluctuation, manufacturing industry is moving towards a high product mix and low order volume production environment. Consequently, the order commitment process is becoming one of the most important processes for manufacturing firms to meet individual customer's needs with limited resources. However, demands for shortened delivery lead time, diverse customer requirements and more frequent customer orders have made the order commitment task more challenging. This paper attempts to tackle these new challenges by incorporating not only manufacturing flexibility but also flexibility from the demand side. Customer flexibility is characterised by customer indifference to certain product attributes and/or delivery schedules. Intuitively, with the consideration of customer flexibility, both manufacturers’ and customers’ interests can be better served since the solution space of matching demand and supply can be extended beyond the traditional domain purely from a manufacturing perspective. To this end, a systematic approach is developed to characterise and model customer flexibility. A mixed-integer-programming model is formulated to provide optimal order commitment decisions.