Uncapacitated production and location planning models with demand fulfillment flexibility

A wealth of past research on production planning models seeks to meet prescribed demands at minimum cost. In many contexts, demand comes from independent sources, not all of which are necessarily profitable. We consider such planning problems from a different perspective, assuming certain demand characteristics are decision variables. We wish to determine optimal levels of demand, production, and inventory for every planning period when flexibility exists in selecting demands and their delivery timing. We present an optimal solution method under certain cost structures, and computational tests demonstrating the effectiveness of a dual-based heuristic for the general problem, which is NP-Hard.