Optimal Product/ Customer Mix Selection as a Strategic Tool for Cross-functional Integration

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Cross-functional integration is a necessity as operations become ever more important for the formulation and implementation of overall company strategy. Despite the abundance of theoretical studies extolling the advisability of smooth intra-company interfacing, the operations strategy literature has not been as prolific regarding tools to increase this desired integration. This paper develops an uncomplicated multi-period analytical model that helps increase coordination of the engineering, purchasing, marketing, and sales areas among themselves and with manufacturing by focusing on the overall company objective of maximizing contribution to profits. The paper begins describing the theoretical underpinnings of production and operations processes as they relate to the strategy of the firm, presents the model, and then expands its scope to include interfaces with other functional areas of the firm. The methodology is based on a two-stage multi-period optimization model for aggregate production planning encompassing component supply management and final assembly. This methodology expands the concept of Sales and Operations Planning (S&OP) through a linear programming model that uses cost and profit contribution data to select the optimal product and customer mix. The sensitivity of results to costing and pricing data leads to increased cross-functional coordination. An illustrative application improving the medium-term operations strategy of a Brazilian OEM manufacturer is presented.

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