Integrated sales and operations planning with multiple products: Jointly optimizing the number and timing of promotions and production decisions

• Published in: Applied Mathematical Modelling 2020-04, Vol.80, p.792-814
• Main Authors: Darmawan, Agus, Wong, Hartanto, Thorstenson, Anders
• Format: Article
• Language: English
• Subjects: Cannibalization; Demand model; Forward buying; Heuristic methods; Optimization; Product substitution; Production planning; Promotion; Sales; Sales and operations planning
• ISSN: 0307-904X; 1088-8691; 0307-904X
• DOI: 10.1016/j.apm.2019.12.001

•Considering product substitution in S&OP help planners make better decisions.•There is no evidence of strong preference for implementing simultaneous promotions.•It is helpful to differentiate consumption, brand switching and forward buying. This paper presents a modelling framework for sales and operations planning (S&OP) that considers the integration of price promotion and production planning for multiple products. Such a modelling framework takes into account the potential competition and cannibalization between products, as well as the allocation of shared production resources. The demand model that we adopt combines purchase incidence, consumer choice and purchase quantity in a sequential framework to obtain the dynamics and heterogeneity of consumer response to promotions. Due to large problem sizes, we develop a heuristic approach for solving the resulting joint optimization problem. The results of our numerical study show interesting findings on the optimal number and timing of promotions that take into account the mutual dependence of marketing and production related factors.