This application case is based on a project that includes one of us. A company that does not wish to disclose its name (or even the precise industry) was facing a major problem of making decisions on...

This application case is based on a project that includes one of us. A company that does not wish to disclose its name (or even the precise industry) was facing a major problem of making decisions on which inventory of raw materials to use to satisfy which customers. This company supplies custom configured steel bars to its customers. These bars may be cut into specific shapes or sizes and may have unique material and finishing requirements. The company procures raw materials from around the world and stores them in its warehouse. When a prospective customer calls the company to request a quote for the specialty bars meeting specific material requirements (composition, origin of the metal, quality, shapes, sizes, etc.), the salesperson usually has just a little bit of time to submit such a quote including the date when the product can be delivered and, of course, prices, and so on. It must make available-to-promise (ATP) decisions, which determine in real time the dates when it can promise delivery of products that customers requested during the quotation stage. Previously, a salesperson had to make such decisions by analyzing reports on available inventory of raw materials. Some of the available raw material may have already been committed to another customer’s order. Thus the inventory in stock may not really be the free inventory available. On the other hand, there may be raw material that is expected to be delivered in the near future that could also be used for satisfying the order from this prospective customer. Finally, there might even be an opportunity to charge a premium for a new order by repurposing previously committed inventory to satisfy this new order while delaying an already committed order. Of course, such decisions should be based on the cost–benefit analyses of delaying a previous order. The system should thus be able to pull real-time data about inventory, committed orders, incoming raw material, production constraints, and so on. To support these ATP decisions, a real-time DSS was developed to find an optimal assignment of the available inventory and to support additional what-if analysis. The DSS uses a suite of mixed-integer programming models that are solved using commercial software. The company has incorporated the DSS into its enterprise resource planning system to seamlessly facilitate its use of business analytics.

Questions for Discussion

 1. Why would reallocation of inventory from one customer to another be a major issue for discussion?

2. How could a DSS help make these decisions?