Joint Pricing and Production Planning for Fixed Priced Multiple Products with Backorders

Abstract

In this paper, we present a multiperiod model for production planning in a make-to-stock manufacturing system with constant pricing. We consider a multiproduct capacitated setting and introduce a demand-based model where the demand is a function of the price. There is an assumption that the production setup costs are negligible. A key part of the model is that backorders are allowed. As a result of this, the problem becomes a nonlinear programming problem with the nonlinearities in both the objective function and some constraints. We develop an algorithm that computes the global optimal production and pricing policy on a finite time horizon. We illustrate the application of the algorithm through a detailed numerical example.