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Optimal Smoothing of Shipments in Response to Orders

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  • Rein Peterson

    (York University)

Abstract

In the American economy practically no penalty for fluctuations in placing orders is incurred by the ordering company, even though such fluctuations are costly to manufacturers and to the economy as a whole. In particular, dynamic pricing by suppliers, which would communicate information on desirable and undesirable times for placing orders, is seldom used in practice. In this paper we extend the Holt, Modigliani, Muth and Simon (H.M.M.S.) aggregate production-work force scheduling model by not requiring the manufacturer to ship exactly what is ordered. Our model provides a means of balancing the costs and benefits (to the manufacturer) of smoothing shipments in response to orders and therefore could be used as an aid in establishing dynamic prices.

Suggested Citation

  • Rein Peterson, 1971. "Optimal Smoothing of Shipments in Response to Orders," Management Science, INFORMS, vol. 17(9), pages 597-607, May.
    • Handle: RePEc:inm:ormnsc:v:17:y:1971:i:9:p:597-607
    DOI: 10.1287/mnsc.17.9.597
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    Cited by:

    1. Jaya Singhal & Kalyan Singhal, 2008. "A Noniterative Algorithm for the Linear-Quadratic Profit-Maximization Model for Smoothing Multiproduct Production," INFORMS Journal on Computing, INFORMS, vol. 20(2), pages 169-178, May.

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