2022 journal article

Managing Product Transitions: A Bilevel Programming Approach

INFORMS Journal on Computing.

By: R. Khorramfar*, O. Özaltın, K. Kempf* & R. Uzsoy n

co-author countries: United States of America 🇺🇸
author keywords: product transitions; bilevel programming; constraint and column generation; generalized Nash equilibrium
Source: ORCID
Added: July 1, 2022

We model the hierarchical and decentralized nature of product transitions using a mixed-integer bilevel program with two followers, a manufacturing unit and an engineering unit. The leader, corporate management, seeks to maximize revenue over a finite planning horizon. The manufacturing unit uses factory capacity to satisfy the demand for current products. The demand for new products, however, cannot be fulfilled until the engineering unit completes their development, which, in turn, requires factory capacity for prototype fabrication. We model this interdependency between the engineering and manufacturing units as a generalized Nash equilibrium game at the lower level of the proposed bilevel model. We present a reformulation where the interdependency between the followers is resolved through the leader’s coordination, and we derive a solution method based on constraint and column generation. Our computational experiments show that the proposed approach can solve realistic instances to optimality in a reasonable time. We provide managerial insights into how the allocation of decision authority between corporate leadership and functional units affects the objective function performance. This paper presents the first exact solution algorithm to mixed-integer bilevel programs with interdependent followers, providing a flexible framework to study decentralized, hierarchical decision-making problems.