Order Assignment and Resource Reservation: An Optimization Model and Policy Analysis

Abstract

To maintain a competitive edge, companies today must be able to efficiently allocate resources to optimally commit and fulfill requested orders. As such, order processing and resource allocation models have become increasingly sophisticated to handle the complexity of these decisions. In our research, we introduce a model that integrates production scheduling, material allocation, delivery scheduling, as well as functions involving commitment of forecast demand for configure-to-order (CTO) and assemble-to-order (ATO) business environments. The model is formulated as a Mixed Integer Program (MIP) and seeks to maximize revenue by trading off commitment of higher profit forecast orders with the production and delivery schedule of lower profit accepted orders. Our model is particularly useful for testing different policies relating to order commitment, delivery mode selection and resource allocation.