Integrating procurement, production planning, and inventory management processes through negotiation information

Abstract

Negotiation is a basic process for the enterprise activities. In this paper we study the problem of creating a tool that allows a manufacturing enterprise to integrate the negotiation related to the procurement process with the production planning, and stock processes. We formulate the procurement problem as a reverse combinatorial auction, and we provide a new mathematical formulation that considers procurement, production, and stock costs. The Combinatorial Auction approach well address the negotiation scenario in which the suppliers can exploit complementary properties (among the production parts) in order to define their offers. In this model the objective function is given by total costs due to the purchased quantity and typology of production parts, the stock levels, and the production variations with respect to the production plan. The winner combination produces new production plan for future periods. Therefore, the production requirement plan for the next periods, the stock levels, and the total costs will be affected. Information elaborated by the developed tool can be also used for procurement strategy. In this paper we show the architecture and the information exchange underlying the model. The model will be then validated by using a standard solver. © 2004 Springer Science + Business Media, Inc.