Integrated Bidding and Manufacturing Planning Decisions with Contingent Orders in a Make-to-Order Environment

Abstract

This paper discusses with the integration of order bidding and manufacturing planning decisions that is, considering contingent orders and multiple production resources. The main objective of this research is to integrate decisions in the internal supply chain of a make-to-order (MTO) manufacturer. Our paper is positioned as subsequent research to Cakravastia et al. (2002), Cakravastia and Nakamura (2002) and Cakravastia and Takahashi (2002), which previously addressed the integration of manufacturing and procurement activities. In this paper, we focuson marketing and manufacturing integration. Since an order for an MTO manufacturer usually comes from a winning bid, we propose a model and technique to simultaneously determine the price and lead-time bidding decision for a new order. We take contingent orders into consideration because these orders, with some degree of probability, will arrive at the shop floor, causing workloads to rise at various facilities; thus affecting production control, scheduling, and hence cost. We extend the bidding decision model of Easton and Moodie (1999) for the case of multiple resources and multiple jobs for each order. As the fundamental objective of a bid is to provide profit to the manufacturer, instead of just winning the order, we integrate the bidding decision with the manufacturing planning decision in preparing the bid for a new order. This decision is responsible for defining : (i) job schedule, and (ii) fabrication lot size. By this integration, the consequences of each possible backlog scenario for manufacturing activities can be determined. The result shows that the proposed technique can be used to optimize the bidding decision and avoid over optimistic bids that would lead to the "winner curse" phenomenon.