Optimization of strategic planning processes for configurable products

Abstract

Assortment planning aims to select the set of products that a retailer or manufacturer will offer to its customers to maximize profitability. While assortment planning research has been expanding in recent years, current models are inadequate for the needs of a configurable product manufacturer. In this paper, we develop models integrating assortment planning and supply chain management decisions for the strategic planning of a large automaker. Our model utilizes a multinomial logit choice model transformed into a mixed-integer linear program through the Charnes–Cooper transformation. It is able to scale to problems that contain thousands of configurations to possibly be offered, a necessity given the number of possible configurations an automaker can build. In addition, most research in assortment planning contains simplified costs associated with product complexity. We better account for design, integration, manufacturing, and supply chain complexities that stem from large product assortments. We believe that our model can significantly aid automotive manufacturers to balance their product complexity with supply chain complexity to improve profitability of vehicle programs. We also present results from a case study motivated by a large global automotive original equipment manufacturer.