Budget Allocation and Profit for Logistics and its Interfaces

Abstract

Presents a multiple‐objective mathematical programming model to co‐ordinate logistics decisions with those on the interface between the production and marketing departments. The model can help decide on an overall budget to request from senior management for logistics and these interfaces, and in systematically allocating the funds between transport, inventory and production. In so doing, this multi‐period model specifies the timing and quantity of raw‐material purchases, and the location and timing of production activities and distribution flows. The budget for expenditures on logistics and its interface activities is taken as an objective to minimise, instead of as a given dollar level to be satisfied. A second objective is to maximise the profit of logistics and its related interfaces. Trade‐offs between these two conflicting aims yields the decision maker′s “best compromise” solution.