The simultaneous planning of production, capacity, and inventory in seasonal demand environments

Manufacturing managers often address capacity and inventory decisions separ ately, thus ignoring the interaction between capacity and inventory within a manufacturing system. The separation of these two decisions can lead to a n imbalance of capacity and inventory investment. We develop a model that s imultaneously plans capacity investment, inventory investment, and the prod uction schedule using rerum on assets as the objective to maximize. An algo rithm is developed that optimizes a fractional objective function for a mix ed-integer program. The model was applied at an electronics manufacturer an d at a manufacturer of office supplies.