Understanding and managing product line complexity: Applying sensitivity analysis to a large-scale MILP model to price and schedule new customer orders

Abstract

This article analyzes a complex scheduling problem at a company that uses a continuous chemical production process. A detailed mixed-integer linear programming model is developed for scheduling the expansive product line, which can save the company an average of 1.5% of production capacity per production run. Furthermore, through sensitivity analysis of the model, key independent variables are identified, and regression equations are created that can estimate both the capacity usage and material waste generated by the product line complexity of a particular production run. These regression models can be used to estimate the complexity costs imposed on the system by any particular product or customer order. Such cost estimates can be used to properly price new customer orders and to most economically assign them to the production runs with the best fit. The proposed approach may be adapted for other long-production-run manufacturing companies that face uncertain demand and short customer lead times.

Keywords:

• Sensitivity analysis
• regression
• integer programming
• manufacturing
• scheduling
• cost analysis

Additional information

Notes on contributors

Zhili Tian

Zhili Tian has extensive work experience in information technology, transportation engineering, and supply chain management. He received his Ph.D. from Washington University in St. Louis. He currently is an Assistant Professor of Decision Sciences and Information Systems at Florida International University. His research has been published in IIE Transactions. He teaches courses on healthcare operations management, quality assessment and health outcome in healthcare, operations management, and supply chain management. His current research focuses on product and manufacturing process development in the pharmaceutical industry, healthcare supply chain management, and quality control and management in healthcare. His research interests include pharmaceutical and medical device new product development, pharmacoeconomics, pharmaceutical supply chain management, healthcare operations management and supply chain management, pharmaceutical productioncapacity investment, causes and mitigation of generic drug shortages, medical decision making, healthcare service operations management, and healthcare quality management and control.

Panos Kouvelis

Panos Kouvelis is the Director of the Boeing Center for Technology, Information & Manufacturing at the Olin Business School at Washington University in St. Louis. He is the Emerson Distinguished Professor of Operations and Manufacturing Management at the Olin Business School. Recently, he was appointed by the Secretary of Commerce to be an expert on the Advisory Committee for Supply Chain Competitiveness. He received his Ph.D. in Engineering Management at Stanford University, MBA and M.S. in Industrial and Systems Engineering at the University of Southern California, and a diploma in Mechanical Engineering at the National Technical University of Athens. He has previously taught at the Fuqua School of Business, Duke University, and the Management Department of the McCombs School of Business at the University of Texas at Austin. He teaches courses in managing the innovation process, operations strategy, and risk management. He has received numerous teaching awards, and he has been frequently mentioned as a top management professor in surveys of top business programs by Business Week. He is an accomplished and prolific researcher, and he is listed as one of the most highly cited business scholars. He has consulted with and/or taught executive programs for Emerson, IBM, Dell Computers, Boeing, Anheuser Busch-InBev, Hanes, Duke Hospital, Barnes-Jewish Hospital, Monsanto, Solutia, Express Scripts, Spartech, MEMC, Ingram Micro, ViJon, MSCI, Maxim, Smurfit Stone, APL Logistics, MECS, Reckitt & Colman, Belden, and Bunge.

Charles L. Munson

Charles L. Munson is a Professor of Operations Management at Washington State University. His Ph.D. and MSBA in Operations Management, as well as his BSBA summa cum laude in Finance, are from Washington University in St. Louis. He also worked for three years as a financial analyst for Contel Telephone Corporation. For two years, he served as Associate Dean for Graduate Programs in Business at Washington State. He serves as a Senior Editor for Production and Operations Management, and he serves on the editorial review board of four other journals. He has published more than 20 articles in numerous journals, including Production and Operations Management, IIE Transactions, Decision Sciences, Naval Research Logistics, European Journal of Operational Research, Journal of the Operational Research Society, and Annals of Operations Research. He is the editor of the book The Supply Chain Management Casebook: Comprehensive Coverage and Best Practices in SCM. He will also be a coauthor for the 12th edition of Operations Management: Sustainability and Supply Chain Management, with Heizer and Render. His major awards include being a Founding Board Member of the Washington State University President's Teaching Academy (2004); winning the WSU College of Business Outstanding Service Award (2009 and 2013), Research Award (2004), and Teaching Award (2001); and being named the WSU MBA Professor of the Year (2000 and 2008).