Emphasis on effective demand management is becoming increasingly recognized as an important factor in operations performance. Operations models that account for supply costs and constraints as well as a supplier's ability to in°uence demand characteristics can lead to an improved match between supply and demand. This paper presents a new class of optimization models that allow a supplier to select, from a set of potential markets, those markets that provide maximum profit when production/procurement economies of scale exist in the supply process. The resulting optimization problem we study possesses an interesting structure and we show that although the general problem is NP-complete, a number of relevant and practical special cases can be solved in polynomial time. We also provide a computationally very effcient and intuitively attractive heuristic solution procedure that performs extremely well on a large number of test instances.

Erasmus School of Economics
Econometric Institute Research Papers
Report / Econometric Institute, Erasmus University Rotterdam
Erasmus School of Economics

van den Heuvel, W., Kundakcioglu, E., Geunes, J., Romeijn, E., Sharkey, T., & Wagelmans, A. (2007). Integrated market selection and production planning: complexity and solution approaches (No. EI 2007-45). Report / Econometric Institute, Erasmus University Rotterdam. Retrieved from http://hdl.handle.net/1765/10776