Activity-Based Costing and Management applied in a hybrid Decision Support System for order management

This article introduces a new Cost Management and Decision Support System (DSS) applicable to Order Management. This model is better fit and compatible with today's competitive, and constantly changing, business environment. The presented Profitable-To-Promise (PTP) approach is a novel modeling approach which integrates System Dynamics (SD) simulation with Mixed-Integer Programming (MIP). This Order Management model incorporates Activity-Based Costing and Management (ABC/M) as a link to merge the two models, MIP and SD. This combination is introduced as a hybrid Decision Support System. Such a system can evaluate the profitability of each Order Fulfillment policy and generate valuable cost information. Unlike existing optimization-based DSS models, the presented hybrid modeling approach can perform on-time cost analysis. This will lead to better business decisions based on the updated information.

Research highlights
► We present a generic systematical approach for solving a SC order management problem.
► The approach utilizes the advantages of SD and MIP with ABC as a harmonizer tool.
► The model provides the order fulfillment optimal mix and implementation strategy.
► The model assigns product’s real time selling price based on the chosen strategy.
► The model presents the cost behavior analysis of the fulfillment strategy.