Mid-term planning optimization model with sales contracts under demand uncertainty

Uncertainty modeling is a challenging topic in supply chain and operation management. When planning material purchase and stock levels, demand uncertainty could have an important impact on the plan results and its feasibility. Additionally, uncertainty could greatly affect customer satisfaction, inventory costs and company profits. From a modeling perspective, problems considering uncertainty are difficult to tackle and lead to complex optimization approaches. This work proposes a mid-term planning model dealing with sales contracts to diminish the effect of uncertainty. Another interesting feature is given by the selection of different price levels. Price elasticity functions are introduced for each customer in order to jointly decide demand targets and prices. A linear generalized disjunctive programming model is developed. Short execution time shows that this model can be applied to analyze several real scenarios to decide material purchase plan, inventory levels, sales strategies, prices and demand levels in a medium term horizon planning. (C) 2012 Elsevier Ltd. All rights reserved.