Contingent Demand Fulfilment Decision Problem from Supplier's Perspective

The planning of production and other operations in a firm is done based on demand forecasts. But production decisions get affected by actual realization of the demand. These decisions are taken keeping into consideration production capacities. Sometimes sudden and unforeseen demands from customers arise. This kind of situation generally arises when customers of a supplier firm get some new contracts or there is a short term but a high fluctuation in their demands. When this sudden or contingent demand arises on customers' side, they create a demand for corresponding spare parts to their suppliers. In this situation, the vendor's decision to satisfy this demand fully or partially is restricted by its own available resources, as processes like production capacity expansion cannot be carried out in such a short response time. The supplier has to decide on the extent of fulfilment of demands of various customers. The decision making in this situation is difficult, as here the supplier has to consider not just the profit from the deal but also some other criteria of business sustainability like business relations and long sightedness in terms of future business prospects which are qualitative in nature. In this paper, we consider the problem of a supplier firm which manufactures products that are used by its customer firms as spare parts to manufacture their specific products. We attempt to address the decision making on the extent of satisfaction of contingent demand of each customer. While deciding on the extent of demands of its customers, we try to address the concern of the supplier firm to concentrate not just on the profit, but also on the future business and relationship with its client firms. For this, we try to quantize these linguistically expressible aspects, so as to use them in our optimization problem.