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

a r t i c l e i n f o 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. Decision Support Systems (DSSs) play a crucial role in today's rigorous global competition business environment. By providing on-time and reliable information, DSS assist management decision making in rendering the company more profitable, leaner, more responsive, and agile. In the area of Supply Chain Order Management, DSSs can be formulated through three different theoretical modeling approaches: Available-To-Promise (ATP), Capable-To-Promise (CTP), and Profitable-To Promise (PTP). The first two modeling approaches emphasize the capacity availability in order to decide whether to accept or reject an order, whereas the PTP approach considers the opportunity cost of accepting or rejecting an order as a main decision evaluation factor. In fact, PTP examine decisions based on the possibility of assigning the available capacity by not accepting an order today to another order with higher profit margin which has been predicted to take place in the future. Regardless of the modeling approach used, management requires a complementary tool that can assist them to analyze the impact of the decision implemented on the business status changes. For instance, with respect to ATP and CTP, management needs to know the availability of their production resources after fulfilling each order. However, PTP management needs to monitor and control the costs and profit changes after taking any decision dynamically. The traditional optimization-based models cannot fulfill this requirement. They are only able to provide relevant information based on the business static status. Moreover, the PTP model needs to be developed based on an accounting approach which can accurately estimate the value of consumed resources. Generally, a production process requires three inputs: Direct Labor, Direct Material, …