Modeling the Tradeoff between Inventory and Capacity to Optimize Return on Assets

In the agrochemical industry, balancing supply with extremely seasonal demand has been a struggle for most companies due to their capacity constraints. Stocking enough inventory ahead of the peak seasons and increasing the production capacity are two ways of resolving the issue. Our research examines an approach to achieve the optimal mix of production capacity and inventory for a company to meet customers’ demand at the highest net present value (NPV) of operating assets value add (OAVA). We use a multi-period, multi-stage, multiproduct mixed integer linear optimization model to determine the best combination of resources.

Authors: Cindy (Hsin-ying) Wu and José Antonio González Duhart Muñoz de Cote
Advisor: Dr. Bruce Arntzen