Activity Based Costing and Management Applied in A Hybrid Decision Support System For Order Management 2011 Decision Support Systems

Decision Support Systems 52 (2011) 142156
Contents lists available at ScienceDirect
Decision Support Systems

j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / d s s
Activity-Based Costing and Management applied in a hybrid Decision Support System

for order management
Amir H. Khataie a,, Akif A. Bulgak a, Juan J. Segovia b
a
b
Department of Mechanical and Industrial Engineering, Concordia University, 1515 St. Catherine St. West, Montral (Qubec), Canada, H3G 1M8 (ofce EV 13105)
John Molson School of Business, Concordia University, Montreal, Canada, 1450 Guy Street, Montral (Qubec), Canada, H3G 1M8 (ofce MB 14229)
a r t i c l e
i n f o
Article history:
Received 8 July 2010
Received in revised form 25 February 2011
Accepted 10 June 2011
Available online 25 June 2011
Keywords:
Activity-Based Costing and Management
Decision Support System
Mixed-Integer Programming
System Dynamics
Supply chain management
Cost control
a b s t r a c t
This article introduces a new Cost Management and Decision Support System (DSS) applicable to Order
Management. This model is better t and compatible with today's competitive, and constantly changing,
business environment. The presented Protable-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 protability of each Order Fulllment 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.
2011 Elsevier B.V. All rights reserved.
1. Introduction
Decision Support Systems (DSSs) play a crucial role in today's
rigorous global competition business environment. By providing ontime and reliable information, DSS assist management decision
making in rendering the company more protable, 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 Protable-To Promise (PTP).
The rst 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
prot 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 fullling each order.
However, PTP management needs to monitor and control the costs
and prot changes after taking any decision dynamically. The
Corresponding author. Tel.: + 1 514 848 2424x7222; fax: + 1 514 848 3175.
E-mail addresses: [email protected] (A.H. Khataie),
[email protected] (A.A. Bulgak), [email protected] (J.J. Segovia).
0167-9236/$ see front matter 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.dss.2011.06.003
traditional optimization-based models cannot fulll 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, and Manufacturing Overhead
(MOH). The rst two are categorized as direct costs, which are
traceable to a specic cost object (e.g. service, product, order). The
latter represents a mixture of both direct and indirect costs (e.g.
maintenance, security, safety) which represents a challenge to assign
them to the cost objects.
The Traditional Cost Accounting (TCA) allocates, as opposed to
assigning, MOH costs either by using a plant-wide rate or departmental rates; either case may distort the nal production cost
amount. Especially in a case where there is a highly customized and
low volume production process. Unrealistic cost estimation, may lead
to mispricing and compromise the rm's growth and protability.
Activity-Based Costing and Management (ABC/M) is a relatively new
cost accounting and management approach that enhances the level of
understanding about business operation costs; especially MOH costs.
ABC/M is an accounting approach which assigns, instead of allocating,
MOH costs to the activities. Although the application of ABC/M does not
eliminate MOH costs allocation, it can reduce it to some facility-level
costs (e.g. facility utility costs, facility managing costs).
The importance of hybrid Supply Chain DSSs has been shown
comprehensively in a recent study presented by Martinez-Olvera [24].
As real-life business environments have become really complex,
A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156
supply chains members have been forced to use hybrid business

models (that is, the integration of features of two different business
models). The other three studies which have paid attention to this
subject are: [19], [20], and [26]. Martinez-Olvera [24] also discussed
the optimization-based simulation models as a potential future work.
This article explains how ABC/M can be utilized as a powerful
approach to develop a hybrid Mixed-Integer Programming (MIP) and
System Dynamics (SD) Decision Support System for Order Management problems. It also introduces a new approach in integrating
ABC/M information with SD simulation modeling technique, which
results in a more reliable and precise cost monitoring tool.
The rest of this article is organized as follows: Section 2 provides a
brief literature review, Section 3 elaborates the discussed general
Order Management problem, Section 4 incorporates the ABC/M-based
Mixed-Integer programming (MIP) decision support model, and
Section 5 provides an illustrative numerical example for the
developed MIP model. The System Dynamics (SD) cost monitoring
model and the hybrid DSS all are explained in Section 6. In Section 7
the relevant conclusion and future work are explained. Finally, the SD
model variables' information is given in Appendix.
2. Background
ABC/M is a two-stage process, (1) associating cost to resource
(activity), and (2) selecting an appropriate activity measurement
(activity cost driver), [6]. Kee [14] named the two steps as; (1) breaking
overhead costs into different cost pools and (2) assigning overhead costs
through different activity cost drivers to products or orders. As a result, a
more accurate overhead costs assignment is achieved.
ABC/M supporters highlight two principal objectives, [11] and
[27]: (1) to provide detailed information about the costs and
consumption of activities in a specic process and (2) to provide
accurate information for managers to improve decisions. This has also
been corroborated by Gosselin [7] regarding a pilot and full ABC/M
implementation studies. However, the use of ABC/M has been limited
to a cost accounting approach, rather than as a managerial technique
(Gosselin [7]; Kaplan and Anderson [13]; Gosseling [8]).
ABC/M advantages, and constructive effects, on a rm's performance have been determined through numerous studies and
dissertations. Kennedy and Aeck-Graves [15], Ittner et al. [12], and
Cagwin and Bouwman [5] attested ABC/M as a preferable accounting
approach compared to the TCA systems. Some studies such as;
Novievi and Anti [25] and Cagwin and Barker [4] showed evidence
of a positive impact of ABC/M on lean manufacturing components like
Just-In-Time (JIT) and Total Quality Management (TQM).
The preeminence of ABC/M in providing detailed cost information
represents a potential powerful approach for developing PTP Supply
Chain Decision Support Systems. Malik and Sullivan [22] developed an
ABC/M-based Mixed-Integer Programming (MIP) decision support
model for product mix problems. Kee [14] integrated some aspects of
the Theory of Constraints (TOC) in ABC/M-based MIP modeling for
the product mix problem and named it Expanded ABC/M model.
The model identies the rm's optimal product mix by evaluating
simultaneously the resources and product cost, the production
resources availability, and the business marketing opportunities.
In Supply Chain Order Management, [17] and [18] presented a PTP
MIP model for accepting or rejecting orders by implementing ABC/M
homogeneous cost pools' structure originally introduced by Cooper and
Kaplan [6]. The purpose of the model was to gain insight into how
signicant Order Management decisions are in maximizing protability
when the rm has insufcient production resources to satisfy all the
demand. Khataie et al. [16] added the possibility of pursuing two main
different goals simultaneously, reducing the residual capacity and
increasing the protability to the previous models.
A powerful PTP Order Management tool assists management to
monitor, analyze, and foresee the consequences and outcomes of each
143
decision, and monitors their business competitiveness factors dynamically. SD is a simulation approach that was developed in the mid
50s by J. Forrester from Massachusetts Institute of Technology (MIT)
to understand the dynamic behavior and status alternation of
complex systems over a certain period of time with learning ability.
Lately, SD has been applied on numerous diverse areas of research by
upcoming the advanced generation of SD simulation software. However,
the survey presented by Braines and Harrison [3] showed the limitations
of SD modeling in the manufacturing sector from the business and/or
operational perspective. This represented a diversication from its
original purpose, which was to serve as a decision support tool for
manufacturing processes at the operational level. Instead, and according
to the survey, SD have been broadly used in the modeling of resource
management at national and global level decision support processes,
and in the service sector at operational levels.
A limited number of studies using SD approach for nancial
decisions have been reported. Abdel Hamid and Madnick [1] used SD
for software development cost estimation. They implemented the SD
simulation technique to see the effects of multi-variable changes in
the model. Marquez and Blanchar [23] applied SD to support
investment decisions in high-technology business. Macedo et al.
[21] developed a real-time cost monitoring model for the reengineering process of a gelatinous substance at the microbiology laboratory
by integrating the ABC/M and SD. However, the developed model was
acting as a real-time cost calculator rather than a System Dynamics
model. There were no positive or negative learning loops in the
proposed model.
3. General illustrative problem
A Flexible Manufacturing System is selected as a pilot production
facility in a simplied three-echelon Supply Chain including supplier,
producer, and customers. The system can set up two different production
processes or models: Basic and Deluxe. Direct material is similar for
both models and there is no restriction for direct material supply. The
manufacturing process, Fig. 1, starts by injecting the common direct
material into the system. Second, the FMS alternates between two types of
setup based on the assigned production plan. Lastly, the manufacturing
products are stored for shipping to the customers.
The rm's management follows a pull-production strategy,
therefore it develops the aggregate production plan (AP) based on
the received orders per month. Not all the orders can be fullled
completely due to machining hour capacity per period; as a result, the
rm's management has to choose the fulllment rate of each order.
The Order Management policy is fullling completely, or partially, or
rejecting the orders according to the production system availability
and order's protability factors.
The problem and parameters have been extracted from a
managerial accounting educational business case study known as
Willow Company from [10]. The production costs have been split
into two groups; prime costs (which include Direct Materials and
Direct Labor) and overhead costs. The latter is divided into ve
homogeneous cost pools with a particular activity cost driver for each
one. The case study assumes that the overhead unit-level costs are
completely traceable and are included in the prime costs.
There are two different batch-level cost pools introduced in the
case study; material handling and setups. Their respective cost drivers
PBasic
RM
FMS
PDeluxe
Fig. 1. Manufacturing process ow.
144
are: number of moves and number of setups. The case also presents
two order-level cost pools: administrative cost pool with activity cost
driver of number of orders and engineering supports cost pool with
activity cost driver of maintenance hours. The last pool is facility-level
which has a unit-level activity cost driver, machining hours, based on
the hint given in the case study. Fig. 2 shows the activity-based cost
ow down diagram for Willow Company.
4. Order Management MIP decision support model
The objective of the Order Management DSS is to nd the most
protable and optimal combination of the fullling ratio of the
received orders. This should be accomplished by taking into account
the orders' protability, the production resources productivity and
availability. In ABC/M the overhead cost charged to each product is
determined by identifying the actual consumption of the activity by
each product, and then multiplying it by its respective unit cost driver.
For the purpose of modeling the rst part of DSS, we implemented
the technique that was introduced by [16], solving the Order
Management problem by integrating the ABC/M and MIP optimization techniques. The integration can be done by applying Cooper
and Kaplan [6] homogenous cost pooling structure. According to
their structure, the overhead costs can be assigned to four specic
homogenous cost pools; unit, batch, product, and facility level
activities' cost pool.
The unit-level activities (machine time, direct material, direct
labor, etc) cost pool includes the overhead costs that vary directly
with the number of units produced. The batch-level activities
(planning and tactical management, material handling, setup, etc.)
cost pool which are the overhead costs invoked whenever a batch is
processed. The product-level activities (process engineering,
manufacturing equipments maintenance, product design, etc.) cost
pool which are overhead costs incurred whenever a particular
product is produced. In this study, the product-level is replaced by
order-level which is overhead costs incurred whenever a particular
order is processed. The facility sustaining activities' cost pool includes
overhead costs such as rent, utilities, and facility management.
Integrating the ABC/M approach into the Order Management DSS
shows and claries the role, importance, and source of each overhead
i
t
o
j
k
l
r
dl+
dl-
product index
period of time index
order index
activities at unit-level index
activities at batch-level index
activities at order-level index
activity at facility-level index
amount of over capacity production (capacity surplus
variable)
amount of under capacity production (capacity slack
variable)
Providing Space
Maintaining
Equipment
Engineering
Support
Receiving
Goods
Paying Supplier
Purchasing
Materials
Setting Up
Equipments
Material
Handling
Cost Pool
Indirect Costs
Activity
Cost Driver
Prime Costs +Holding Cost

+ Direct Overhead Costs
Direct Costs
cost in a production process in a more precise and reliable manner as

compared to the TCA approach.
The developed mathematical Order Management Decision Support
model pursues two goals: maximizing the prot and minimizing the
residual capacity. These two goals are incorporated into the model
by applying Weighted Goal Programming (WGP) techniques. The
general objective function is maximizing the prot (sales revenue
production resources costs holding costs) and minimizing the
residual capacity simultaneously, subject to different constraints like
production resources constraints, order commitment constraints,
management discretionary constrains, and inventory constraints.
The management discretionary factor is also added to the model by
using a constraint that fullls a certain number of orders completed.
The generic model is developed based on the following assumptions: processing times are deterministic, each product is manufactured in equal-size batches under a pull system, and each order
consists of just one type of product. There is a possibility to satisfy the
orders partially, completely, or even reject them.
In this study, the general homogenous costs' pooling structure,
which has been used in previous studies, is replaced by a more detailed
homogeneous costs' pooling structure. Instead of grouping all the batchlevel activities in one cost pool, we are dealing with two different batchlevel overhead cost pools; similarly for order-level activities. In addition,
the facility-level overhead costs' pool is also considered in this case
study. As mentioned before, for the Willow Company case study, the
unit-level overhead activities' resources and costs are integrated into
the prime costs. The applied notations are as follows:
Batch-Level 1 Batch-Level 2
Order-Level 1
Order-Level 2
Facility-Level
No. Of Moves No. Of Setups
No. Of Orders
Maintenances
Hours
Machining
Hours
Define the Order Fulfillment Cost

Fig. 2. Activity-based cost ow diagram for Willow Company.
pri
ak
yl
cr
hi
qijr
uijk
fil
bij
pi
m1
m2
m3
m4
O
Diot
Qjt
Ukt
Fl
Iit
Pit
Siot
Bijt
Yiot
YBiot
prime cost of product i

batch-level k pool rate
order-level l pool rate
facility-level r pool rate
holding cost of product i per period
consumption rate of performing activity r at facility-level
related to activity j at unit-level for product i
consumption rate of performing activity k at batch-level
related to activity j at unit-level for product i
consumption rate of performing activity l for product i
batch size of product i at activity j
sales price of product i
cost of stretching the production capacity
cost of not using whole capacity
preference coefcient of maximizing prot
preference coefcient of minimizing residual capacity
number of orders which should be fullled completely
demand quantity of product i in order o due in period t
total available time to perform activity j in period t
total available time to perform activity k in period t
total available time to perform activity l
inventory level of product i in period t
amount of product i produced in period i
quantity of product i from order o sold in period t
number of batches of product i produced in machine j in
period t
the proportion of accepted order o from product i in period t
the binary form of Yiot
In order to develop the multi-objective function we used WGP

technique. Eq. (1) represents the objective function, which consists of
two parts that pursue two different goals of the Decision Support
model. The mi represents each goal's signicance or management
preference coefcient for each goal. The rst part calculates the prot,
which is the revenue (multiplication of sales by the product price)
minus the production process costs. The production process costs is
the addition of the prime costs, overhead costs (batch-level, orderlevel, and facility-level) and product's holding costs. The second part of
the objective function minimizes the residual capacity. According to
this term any violation from the available Order Fulllment capacity
has a certain penalty cost.
Max z = m3 t o i pi Siot t i pri
Pit t i j k ak uijk Bijt

t o i l yl fil Yiot t o i j r cr

qijr Siot i t hi Iit m4 l m1 dl + m2 dl

Constraints (2) and (3) ensure that the available Order Fulllment
resource capacity at unit-level and batch-level capacity, respectively,
are not exceeded. Constraints (4) allow the diversity in batch sizes to
exist.
i qijy Pit Q jt
j; r; t
i j uijk Bijt Ukt
k; t
Pit = bij Bijt
i; j; t
Constraints (5) make sure that the production quantity meets the
sales commitments of each order. Constraints (6) are the order-level
activities capacity variation constraints. They ensure that we accept
the orders considering the order-level activities available capacity.
145
The ratio of Order Fulllment is represented with the proportion

fulllment decision variables (Yiot). These decision variables can take
any real number between 0 and 1, which represents the acceptance
portion of each order.
i; o; t
Siot = Diot Yiot
i o t fil Yiot dl + dl = Fl
5
l
Constraints (7) incorporate the management discretionary factor

into the model, which represents the number of orders (O) that
management decides to fulll completely. Constraints (8) ensure that
if a specic order is selected to be fullled completely then the
relevant fulllment ratio (Yiot) is equal to 100%. Constraints (9) make
sure that the feasible area only includes the orders that exist.
Accordingly, if the demand of a certain order from certain product
at certain period (Diot) is equal to 0 then Yiot of that order must be
equal to zero.
i o t YBiot O
Yiot YBiot
i; o; t
Diot Yiot
i; o; t
Constraints (10) and (11) determine the inventory level for each
product type at the end of each period of time.
Ii0 = 0
10
Iit1 + Pit Iit = o Siot
i; t1
11
Finally, constraints (12) to (14) are the non-negativity constraints,

and constraints (15) are the binary constraints.
Pit 0
i; t
12
Bijt 0
i; j; t
13
0Yiot 1
i; o; t
14
YBiot = 0 or 1
i; o; t
15
The model has an illustrative emphasis on the effect of overhead

costs in the decision making process by replacing the homogenous
order and batch-level overhead costs pool with a more detailed and
activity oriented overhead cost pools. It also integrates the facilitylevel activities overhead costs pool. In fact, the model elaborates on
how the signicant role of overhead costs are in the procedure of
Order Management decision making in a better way as compared to
the previous MIP Order Management models. In the following section
the model is validated by using a numerical example.
5. Numerical example
In this case study, management is required to make decisions
regarding sixteen received orders over the next twelve periods of time
(months). The list of the received orders and their specications are
shown in Table 1. Each order consists of only one type of product
either the Deluxe or the Basic model. The objective is to nd the
optimal combination of Order Fulllment ratio, the combination that
maximizes the prot and minimizes the residual capacity for the
system. All the required nancial and operational parameters are
extracted from the Willow Company case study.
Even though the Willow Company case study does not include
holding costs, we decided that such a variable is important in a
realistic scenario. Therefore, a holding cost has been assigned to each
146
Table 1
Order specications.
Order number
Product type
Period due
Quantity
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Basic
Basic
Deluxe
Basic
Deluxe
Basic
Basic
Deluxe
Deluxe
Basic
Deluxe
Basic
Basic
Basic
Deluxe
Deluxe
1
2
2
2
3
5
5
5
6
8
9
10
11
12
12
12
3500
4600
2500
3000
2500
3200
4700
1900
4000
4500
3000
3500
3000
5000
2700
5000
product. An applicable holding cost (hi) is assumed to be equal to 5% of

the ABC/M-based unit manufacturing cost as indicated in reference
[10]. Therefore, the amounts used in the MIP model are 4.22 and 9.06
for the Basic and the Deluxe models, respectively, in dollar/unit/
month. A further elaboration of holding costs requires incorporating
inventory-related activities into the model structure.
The manufacturing facility can produce the Basic and the Deluxe
models in batch sizes of 100 and 170 units, respectively, based on the
given projected production amount and the number of setups for each
product. The resource annual capacity at different level has been
determined based on the cumulative forecasted annual resource
consumption given in the case study for producing the projected
amount for each product. The preference coefcients (m1 to m4) are
equal to 1, 0.5, 1, and 2, respectively given from [16]. According to this
combination the goal of minimizing the residual capacity has higher
signicance compared to the prot maximization goal.
The model is coded with the optimization software Lingo Version
10 and applied to the different scenarios, different desirable number
of orders (O) which should be satised completely, on a 3.00 GHz
Pentium-4 processor with 1 GB of RAM. The average computational
time for the presented model is less than 5 s.
As discussed before, the goal is to nd the optimal combination of
fullling ratio of the received orders by taking into account the
production resources capacity availability and protability factor for
each order. According to the results shown in Table 2, the optimal
value is $3,694,067.00 which considers all the costs, including the
facility-level costs (xed overhead costs) by relaxing the constraint of

fullling a certain number of orders completely.
The related optimal solution is by fullling ve orders completely
and six orders partially. The table also shows the effect of integrating
the management discretionary factor into the model where a certain
number of orders have to be fullled completely. Management
strategy for reaching higher customer satisfaction may require more
number of orders to be fullled completely. According to Table 2,
demanding more than ve completely fullled orders diminishes the
company's prot. In fact, management would sacrice the short-term
prot for having a higher customer satisfaction level and long-term
prot. This is the consequence of having the set of constraints (7) as a
binding constrain.
The developed PTP model, by integrating the ABC/M information into
the mathematical Order Management Decision Support model, elaborates
more on the role of costs and especially overhead costs in the Order
Management process compared to the more traditional CPT and ATP
models. However, the presented MIP model solely cannot provide an ontime detailed cost analysis for the different Order Fulllment scenarios
because of its static nature. In fact, it does not take advantage of all the
information generated by applying ABC/M cost structure. Therefore, there
is a need for a complementary decision support model.
The Decision Support System presented in this paper can be used
as a cost monitoring and cost analysis tool with the ability to evaluate
and foresee the effects of each taken decision on the system status.
The next steps explain how the output of the MIP model can be used
as an input of the System Dynamics-based cost analysis model and
how ABC/M is used as a common approach to link these two models
and introduces them as a hybrid DSS.
6. System Dynamics decision support model
The main advantage of System Dynamics as a continuous
simulation approach versus a discrete event simulation approach is
its ability to continuously update the system variables after each
decision is taken (simulation run). Within this optic the next
simulation run will be based on the updated variables from the
previous run. SD has been applied in a wide range of areas; corporate
planning and policy design, biological and medical modeling, energy
and environment, software engineering, and supply chain management, according to the study of Angerhofer and Angelides [2].
Gregoriades and Karakostas [9] presented a framework to show
how SD can integrate with business objects and act as a powerful
simulation approach to help organizations in pursuing their goals and
monitoring their processes. We believe the ability of SD in on-time
Table 2
Comparison table for fullling rates.
Minimum desirable amount of orders which should be satised completely
Order
5 or less fullling rate %
6 Fullling rate %
7 Fullling rate %
8 Fullling rate %
9 Fullling rate %
10 Fullling rate %
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Prot $
86
65
14
27
72
100
45
17
100
68
100
100
100
20
3,694,067.00
86
14
100
27
72
100
45
17
100
68
100
100
100
20
3,693,925.00
86
14
100
6
72
100
100
17
100
68
100
100
100
20
3,681,280.00
60
14
100
27
100
100
30
100
100
100
100
100
20
3,650,092.00
31
8
100
100
100
100
100
100
100
100
100
20
3,614,196.00
No feasible solution
evaluation of the system status can be used in cost monitoring process

as well. The remaining of this study is focused on presenting a novel
cost monitoring model for Order Management problems and the
combination with the developed MIP model. The combination of these
two models creates the hybrid Decision Support System. Fig. 3 dashed
lines show the ow of information.
The SD model is developed based on the earlier variables as
dened in the MIP model and with respect to the similar applied
ABC/M structure. This represents ABC/M as a common approach
between the MIP and SD decision support models. These two
models are linked through a spreadsheet generated by the MIP
model. The main objective of the SD model is to estimate real-time
selling price and adjust pool rates in each month, based on the
previous months' Order Fulllment policy received from the MIP
model.
Basically, management decides about the scenario of the Order
Fulllment, number of orders that should be fullled completely, and
the MIP model provides the optimal solution for the desirable
scenario; this includes the Order Fulllment rates for each order, as
can be observed in Table 2. In the next step, the output of MIP model is
used as the input for SD model in order to have the possibility of ontime monitoring of related costs and to dene the minimum products'
selling price in each period regarding the previous decisions and
desirable markup.
The SD model structure contains level variables, rate variables,
and auxiliary variables which are all related to each other within
and without ows. Level or stock variables are represented by
rectangles and they show the level of discussed unit (e.g. products
or money) in the system at different periods of time. The
combination of level variables normally denes the status of the
system at different times. Rate variables control the pace of
change in a specic level variable and are represented by valves in
the model; in fact, they determine the ow. The auxiliary
variables, which are shown with clear boxes, simplify the model
and make it easier to understand. The clouds play the role of
source and sink nodes for the in and out ows. This means the ow
comes from or goes to outside boundaries of the model. The
variables within single left and right-pointing angle quotes are
shadow variables. They are substitute of any level, rate, or
147
auxiliary variables to avoid the model to be crowded and unclear.

The SD model is developed in Vensim software with the similar
legends discussed in [28] and it includes six different parts.
6.1. First part
The rst part of the SD model, Fig. 4, calculates the total
holding cost separately for each product by getting the exact level
of inventory for each type of product in each period and the
related holding fractional ratio for each case. All the initial pool
rates and the other related constants (e.g. batch sizes, markups,
holding cost) are similar to the MIP model. The Order Fulllment
rate, production rates and shipping rates are extracted from the
output of MIP part of the hybrid model. As mentioned before,
the SD part can read the MIP model output from the spreadsheet
generated by LINGO.
6.2. Second to sixth part
All the ve learning loops that determine and adjust the pool
rates are shown in Figs. 5 to 9. The pool rates' adjustment loops
help the model to dene the selling price based on the actual
Order Fulllment costs. For the batch-level-1 (material handling), Fig. 5, the loops are batch-level-1 cost rate for the Deluxe
model total bacth-level-1 cost for Deluxe model total batchlevel-1 cost batch-level-1 pool rate and the same loop for the
Basic model. These two loops adjust the batch-level-1 pool rate
in each period based on the material handling activity resource
consumption in the previous periods. The batch level-1 pool rate
is also related to the total consumption of batch-level-1 cost
pool activity driver. This level variable is estimated via batch
level-1 activity cost driver consumption ratio for the Basic and
Deluxe models, which eventually depends on the products'
batch size, production rate, and batch-lelvel-1activity consumption ratio.
Fig. 6 shows the relations for the batch-level-2 (Setup). The pool
rate adjustment loops are similar to the batch-level-1 loops. The total
consumption of bacth-level-2 cost pool activity driver is estimated in
each period of time via the product's production rate, batch size, and
Hybrid MIP-SD Decision Support System
ABC/M information system
Fulfillment
rates
Fulfillment
rates
Pricing
Strategy
System Output
System Input
Orders
Specification
Fig. 3. Hybrid Order Management Decision Support System.
System Dynamics
Model
Optimization
Model
Fulfillment Policy Spreadsheet
148
Deluxe model holding

cost coefficient
holding cost fractional
ratio for Deluxe model
<Deluxe model cost of goods

manufactured per unit>
Holdeing Cost Rate of

Deluxe Model
Total Production of
Deluxe Model
Deluxe Model
Production Rate
Total Production of
Basic Model
Basic Model
Production Rate
Inventory Level of
Deluxe Model
Inventory Level of
Basic Model
Basic model holding

cost coefficient
Deluxe Model
Shipping Rate
Basic Model
Shipping Rate
Holding Cost Rate of

Basic Model
Total Holding Cost

of Deluxe Model
Total Sales of
Deluxe Model
Total Sales of
Basic Model
Total Holding Cost

of Basic Model
holding cost fractional

ratio for Basic model
<Basic model cost of goods
manufactured per unit>
Fig. 4. Inventory level and holding cost approximation.
supplier, and receiving goods; it is presented in Fig. 7. In this case the

pool rate adjustment loops are order-level-1 cost rate for Deluxe
model total order-level-1 cost for Deluxe model total cost of orderlevel-1cost pool cost-level-1 pool rate and the same loop for the Basic
batch-level-2 activity driver consumption ratio, which is similar to the

previous cost pool.
The relations for order-level-1, which is a homogenous cost pool,
contain their different MOH costs; procurement material, paying
batch size of
Deluxe model
Batch-Level-l Cost (Material

Handling) Rate for Deluxe
Model
<Deluxe Model
Production Rate>
batch-level-1 activity cost driver

(number of moves) consumption
ratio by Deluxe model
Total Batch-Level-1
(Material Handling)
Cost for Deluxe Model
total batch-level-1
(material handling) cost
batch-level-1 (material
handling) pool rate
Batch-Level-1 Cost
(Material Handling) Rate for
Basic Model
Total Batch-Level-1
(Material Handling)
Cost for Basic Model

consumption ratio by each batch
of Deluxe model
Total Consumption Ratio of

Batch-Level-1 Activity Cost
Driver (Number of Moves)
Total Consumption Batch-Level-1

Cost Pool Activity Driver (Number
of Moves)
batch size of
Basic model
(number of moves) consumption
ratio by Basic model
of Basic model
Fig. 5. Batch-level-1 pool rates adjustment loops.
<Basic Model
Production Rate>
<batch size of
Deluxe model>
Total Batch-Level-2
(Equipments Setup)
Batch-Level-2 Cost
(Equipments Setup) Rate for
Deluxe Model
<Deluxe Model
Production Rate>

(number of setups) consumption
total batch-level-2
(equipments setup) cost
batch-level-2
(equipments setup) pool
rate
Batch-Level-2 Cost
(Equipments Setup) Rate for
Basic Model
Total Batch-Level-2
(Equipments Setup)
149

of Deluxe model

Batch-Level-2 Activity Cost
Driver (Number of Setups)
Total Consumption Batch-Level-2

of Setups)

(number of setups) consumption
<batch size of
of Basic model
<Basic
Model
Basic model>
Production Rate>
Fig. 6. Batche-level-2 pool rates adjustment loops.
order-level-1 activity cost driver

consumption ratio by each order
of Deluxe model
Deluxe model order

fulfillment rates

(number of orders) consumption
Order-Level-1 Cost
Rate for Deluxe Model
Total Order-Level-1
total cost of
order-level-1 cost pool
order-level-1
pool rate
Order-Level-1 Cost
Rate for Basic Model
Total Order-Level-1

Order-Level-1 Activity Cost
Driver (Number of Orderss)
Total Consumption Order-Level-1

of Orders)

(number of orders) consumption
Basic model order
fulfillment rates
of Basic model
Fig. 7. Order-level-1 pool rates adjustment loops.
150
<Deluxe model order

fulfillment rates>

of Deluxe model
(maintenances hours) consumption
Order-Level-2 Cost
Rate for Deluxe Model
Total Order-Level-2
order-level-2
pool rate
Order-Level-2 Cost
Rate for Basic Model
total cost of
order-level-2 cost pool
Total Order-Level-2

Order-Level-2 Activity Cost
Driver (Maintenances Hours)
Total Consumption Order-Level-2

Cost Pool Activity Driver
(Maintenances Hours)

(maintenances hours) consumption
<Basic model order
of Basic model
fulfillment rates>
Fig. 8. Order-level-2 pool rates adjustment loops.
model. In the order-level-1 cost pool, the MOH costs are estimated via
order fulllment rates for the Deluxe and Basic models and orderlevel-1 activity cost driver consumption ratio.
For the order-level-2 homogeneous cost pool, engineering and
maintenance, the relations between variables are presented in Fig. 8.
The relevant adjustment loops are designed similar to the order-level-1
MOH costs for the Basic and Deluxe models. The total consumption of
order-level-2 cost pool activity driver is estimated through order

fulllment rates for each product model and the order-level-2 activity
cost driver consumption ratio.
Fig. 9 presents the relations between variables involved estimating
the facility-level MOH cost. The pool rate adjustment loops are similar
to the previous cost pools. We are considering the facility-level
activity cost driver consumption ratio and the orders' shipping rates in
<Deluxe Model
Shipping Rate>
Facility-Level (Providing
Space) Cost Rate for Deluxe
Model
Total Facility-Level
(Providing Space) Cost
for Deluxe Model
facility-level (providing
space) pool rate
Facility-Level (Providing
Space) Cost Rate for Basic
Model
facility-level activity cost driver

consumption ratio by each unit
of Deluxe model
(machining hours) consumption
total cost of facility-level

(providing space) cost
pool
Total Facility-Level
(Providing Space) Cost
for Basic Model
<Basic Model
Shipping Rate>

Facility-Level Activity Cost
Driver (Machining Hours)
Total Consumption Facility-Level

Cost Pool Activity Driver
(Machining Hours)

(machining hours) consumption
consumption ratio by each unit
of Basic model
Fig. 9. Facility-level pool rates adjustment loops.
151
<Total Batch-Level-1
<Total Batch-Level-2 (Material Handling) Cost for
<Total Holding Cost of
Deluxe Model>
(Equipments Setup) Cost for
<Total Order-Level-1
Deluxe Model>
Deluxe Model>
Cost for Deluxe Model>
Deluxe model cost of
goods manufactured
total overhead cost for
Deluxe model
Cost for Deluxe Model>
fractional prime cost
<Total Production of
ratio for Deluxe model
Deluxe Model>
Deluxe model cost of goods
<Total Facility-Level
manufactured per unit
(Providing Space) Cost for
Total Prime Cost of
Deluxe model
Deluxe Model>
Deluxe Model
Prime Cost Rate of
markup
Deluxe
model
Deluxe Model
<Deluxe Model
selling price
Production Rate>
Basic model
<Basic Model
Basic model
selling price
Production Rate>
markup
Total Prime Cost of
Basic Model
Prime Cost Rate of
Basic Model
(Material Handling) Cost for
Basic Model>
(Equipments Setup) Cost for
<Total Production of
Basic Model>
Basic Model>
Basic model cost of goods

manufactured per unit
fractional prime cost

ratio for Basic model
Basic model cost of

goods manufactured
<Total Holding Cost

of Basic Model>
total overhead cost

for Basic model
Cost for Basic Model>
<Total Facility-Level
(Providing Space) Cost for
Basic Model>
Cost for Basic Model>
Fig. 10. Selling price and product cost estimation.
order to estimate the total consumption of the related activity cost

driver.
6.3. Seventh part
The prime costs, overhead costs, cost of goods manufactured, and
selling price for each product type are determined in Fig. 10. The
prime costs are calculated based on the production rates and
fractional production ratios which are the same as the prime costs
per unit projected in the Willow Company case study. The overhead
cost for each model is equal to the summation of all the overhead costs
at batch, product, and facility level for the specic product. Adding this
amount to the related holding costs and prime costs provides the cost
of goods manufactured. The selling price for each product is estimated
by adding the specic markup for each product to the related cost of
goods manufactured per unit for that product. The related equations
to the SD model variables are presented in alphabetical order in the
Appendix.
The model can be applied to the different Order Fulllment
scenarios in order to appraise the attributes of each Order Fulllment
policy and evaluate the effect of the management discretionary factor
on the manufacturing cost and subsequently on the selling price
(selling price = (1 + markup) cost of goods manufactured per unit).
The variation in the selling price based on the number of orders that
should be fullled completely is shown in Table 3. The indicated prices
in period one are the prices used by the MIP model.
The selling prices estimated by the SD model are calculated
through the actual manufacturing cost. The estimated prices are
Table 3
Selling price variation.
5 or less selling price $
6 Selling price $
Period
Basic
Deluxe
Basic
Deluxe
7 Selling price $
Basic
Deluxe
8 Selling price $
Basic
Deluxe
9 Selling price $
Basic
Deluxe
1
2
3
4
5
6
7
8
9
10
11
12
Average
180.000
178.755
178.429
178.051
179.361
183.081
182.259
182.703
184.298
184.254
184.859
185.142
181.766
360.000
347.461
356.987
350.247
349.443
350.344
349.392
348.386
350.759
356.031
355.623
355.856
352.544
180.000
178.755
178.461
178.075
179.378
183.096
182.272
182.715
184.309
184.263
184.867
185.150
181.778
360.000
347.461
356.987
350.247
349.443
350.344
349.392
348.386
350.759
356.031
355.623
355.856
352.544
180.000
178.755
178.461
178.075
179.624
182.746
181.913
182.426
184.138
184.106
184.756
185.061
181.672
360.000
347.461
356.987
349.049
352.819
361.395
358.145
355.685
356.718
360.747
360.227
360.302
356.628
180.000
178.361
179.591
179.933
181.482
185.620
184.460
184.658
186.064
185.858
186.271
186.403
183.225
360.000
347.461
356.955
350.215
349.415
349.962
350.457
354.435
360.160
368.390
367.541
367.384
356.865
180.000
177.923
180.829
181.999
184.531
188.559
186.896
186.817
188.079
187.668
187.871
187.828
184.917
360.000
347.461
356.999
350.852
356.819
366.354
363.199
364.481
368.187
374.675
373.705
373.380
363.009
152
Table 4
Total cost of goods manufactured per model.
Product 5 or less cost of goods manufactured 6 Cost of goods manufactured 7 Cost of goods manufactured 8 Cost of goods manufactured 9 Cost of goods manufactured
$
$
$
$
$
Basic
Deluxe
2,343,900.00
883,103.00
2,344,000.00
883,103.00
2,256,110.00
986,631.00
2,359,860.00
911,711.00
2,289,830.00
1,022,440.00
Table 5
Total production per model.
Product
5 or less total production unit
6 Total production unit
Basic
Deluxe
27,000
4930
27,000
4930
26,000
5440
27,000
4930
26,000
5440
Table 6
Total overhead cost per model.
Product
5 or less total overhead cost $
6 Total overhead cost $
Basic
Deluxe
94,247.20
71,830.60
94,338.00
71,830.60
90,696.40
79,327.80
94,114.10
71,762.50
90,173.30
79,090.50
used as a reference price in implementing the Order Fulllment

policy, instead of the selling price used by MIP model. The
calculated selling prices for each product per period are indeed a
lower limit for the products selling price. Thus, if management is
willing to achieve the desirable projected prot, it should charge
the customer no less than the calculated selling price per period
for each type of product. According to the SD model output,
Table 3, fullling more orders completely would require to
increase the selling price.
The rise in the average products' selling price could be the
consequence of an increase in the total cost of goods manufactured
(that could be the result of changes in the total overhead costs, total
prime costs, and/or total holding costs) and/or an increase in the
manufacturing system residual capacity (this could be the result of
changes in the production rate).Table 4 exhibits the total cost of goods
manufactured for each model. Table 5 shows the related production
amount and Table 6 displays the total overhead costs for each product
type. Similar tables can be extracted from the model output for the
other variables.
The variations in the cost amounts are because of the selected

order fulllment policy, which denes the inventory policy and the
production rates. For example, in the case of 6 orders to be completely
fullled, the total production amount according to the Table 5 for the
Deluxe model is 4930 units and for the cases of 7 and 8 orders to be
completely fullled are 5440 and 4930 units respectively. Therefore,
the increases in both MOH and the manufacturing costs from 6 to 7 as
well as the decreases from 7 to 8 can be justied.
However, the production amount is not the only reason in cost
variations. The other reason is due to the changes in the pool rates.
The model adjusts the pool rates after each run. This justies the
difference between the MOH costs for the Basic model from the case of
5 to the case of 6, although the total production amount remains the
same. The other reason for the cost changes is due to the inventory
cost which is different for each order fulllment policy.
The model also has the ability to adjust the pool rates. Fig. 11
reveals the adjustment for the order-level activities pool rates in
different Order Fulllment scenarios. The disparity between the
order-level pool rates under different fulllment scenarios is because
Order-Level-1 Pool Rate
Order-Level-2 Pool Rate

Dollar/Order
Dollar/Order
200
150
100
50
0
10
11
12
70
60
50
40
30
20
10
0
Time(Month)
Fulfilling 5,6, or 7 Orders Completely
Fulfilling 8 Orders Completely
Time(Month)
Fig. 11. Order-level activities pool rates.
10
11
12
Batch-Level-1 Pool Rate
Batch-Level-2 Pool Rate
20
Dollar/Order
Dollar/Order
20.02
19.98
19.96
19.94
19.92
19.9
153
10
11
12
1400
1200
1000
800
600
400
200
0
Time(Month)
10
11
12
Time(Month)


Dollar/Order
Facility-Level Pool Rate

2.002
2
1.998
1.996
1.994
1.992
1.99
1.988
10
11
12
Time(Month)
Fig. 12. Batch-level and facility-level activities pool rates.
of the correlation between the Order Fulllment ratios and the orderlevel activities. In contrast, in Fig. 12 there is no correlation between
batch-level and facility-level activities' pool rates and the Order
Fulllment scenario. Accordingly, the pool rates have not changed for
those activities at different Order Fulllment scenarios.
7. Conclusion and future work
This study introduces a novel modeling approach by integrating
System Dynamics and MIP programming in order to develop a powerful
hybrid PTP Decision Support System for the Supply Chain Order
Management problem. The developed DSS system assists management
in monitoring, analyzing and foreseeing the consequences and outcomes
of each decision and monitors their business competitiveness factors. In
the rst step, we developed a mathematical Decision Support model
based on the ABC/M cost structure. In the MIP model a more detailed and
activity-oriented cost structure is used to enhance the model accuracy.
As a second step, the ABC/M-based SD model presented a complementary tool to the MIP model. This model identies the interconnections
and correlations between the Order Management decision making
variables. The SD model helps management to investigate and examine
the further consequences of executing the different Order Fulllment
decision scenarios expansively. The model adjusts the pool rates based on
the actual costs, denes the on-time selling price based on the Order
Management fulllment policy, and can also serve as a cost monitoring
tool with the purpose of checking the costs behavior at different levels and
for different products. ABC/M, as a common modeling approach, makes
two models work together as a hybrid Decision Support System.
The hybrid DSS output indicates that fullling more orders actually
decreases the company's prot (MIP part output), and requires
adjusting the product selling price (SD part output). Depending on the
product type and applied Order Fulllment scenario, the selling price
could be decreased or increased compared to the initial selling price
used in the MIP model. Reducing the selling price can give more
satisfaction to the customer if the level of order fulllment remains

the same. However, increasing the selling price may result in a lower
or higher customer satisfaction level. This depends on the customer's
understanding and the value given to a better order fulllment
service. Thus, it should be considered that the result of fullling more
orders completely actually may conict with the original intention of
increasing customer satisfaction.
This study can be further expanded by integrating the cost of
backlog among the decision making factors, which improves the
model accuracy level. Illustrating the role of raw material suppliers
and raw material inventory into the hybrid system through the
integration of the supplier selection decision based on the supplier
costs analysis and raw material holding costs could enhance the
model legitimacy level. Another potential extension of this research is
by using a similar approach to evaluate the inventory cost. Moreover,
a comprehensive design of experiments can be used to analyze the
model output and price variations.
Appendix
1. Basic model cost of goods manufactured = total overhead cost
for Basic model + Total Prime Cost of Basic Model + Total
Holding Cost of Basic Model Units: Dollar
2. Basic model cost of goods manufactured per unit = IF THEN ELSE
(Total Production of Basic Model N 0, Basic model cost of goods
manufactured / Total Production of Basic Model, 84.4) Units:
Dollar/Unit
3. Basic model holding cost coefcient = 0.05 Units: 1/Month
4. Basic model markup = 1.1327 Units: Dmnl
5. Basic model order fulllment rates: = GET XLS DATA(FB.xls,
Sheet1, 1, B3) Units: Order/Month
6. Basic Model Production Rate: = GET XLS DATA(PB.xls, Sheet1,
1, B3) Units: Unit/Month
154
7. Basic model selling price = (1 + Basic model markup) Basic

model cost of goods manufactured per unit Units: Dollar/Unit
8. Basic Model Shipping Rate: = GET XLS DATA(SB.xls, Sheet1,
9. batch size of Basic model = 1000 Units: Unit/Batch
10. batch size of Deluxe model = 170 Units: Unit/Batch
11. batch-level-1 (material handling) pool rate=IF THEN ELSE(total
batch-level-1 (material handling) costN 0, total batch-level-1
(material handling) cost/Total Consumption Batch-Level-1 Cost
Pool Activity Driver (Number of Moves), 20)Units: Dollar/Move
12. batch-level-1 activity cost driver (number of moves) consumption ratio by Basic model = Basic Model Production Rate/batch
size of Basic model batch-level-1 activity cost driver consumption ratio by each batch of Basic model Units: Move/Month
13. batch-level-1 activity cost driver (number of moves) consumption ratio by Deluxe model = Deluxe Model Production Rate/
batch size of Deluxe model batch-level-1 activity cost driver
consumption ratio by each batch of Deluxe model Units:
Move/Month
14. batch-level-1 activity cost driver consumption ratio by each
batch of Basic model = 100 Units: Move/Batch
batch of Deluxe model = 66.67 Units: Move/Batch
16. Batch-Level-1 Cost (Material Handling) Rate for Basic Model = batch-level-1 activity cost driver (number of moves)
consumption ratio by Basic model batch-level-1(material
handling) pool rate Units: Dollar/Month
17. batch-level-2 (equipments setup) pool rate = IF THEN ELSE
(total batch-level-2 (equipments setup) cost N 0, total batchlevel-2 (equipments setup) cost / Total Consumption BatchLevel-2 Cost Pool Activity Driver (Number of Setups), 1200)
Units: Dollar/Setup
18. batch-level-2 activity cost driver (number of setups) consumption ratio by Basic model = Basic Model Production Rate/
batch size of Basic model batch-level-2 activity cost driver
consumption ratio by each batch of Basic model Units:
Setup/Month
19. batch-level-2 activity cost driver (number of setups) consumption
ratio by Deluxe model=Deluxe Model Production Rate/batch size
of Deluxe modelbatch-level-2 activity cost driver consumption
ratio by each batch of Deluxe modelUnits: Setup/Month
batch of Basic model = 1 Units: Setup/Batch
batch of Deluxe model = 1 Units: Setup/Batch
22. Batch-Level-2 Cost (Equipments Setup) Rate for Basic Model = batch-level-2 (equipments setup) pool rate batchlevel-2 activity cost driver (number of setups) consumption
ratio by Basic model Units: Dollar/Month
23. Batch-Level-2 Cost (Equipments Setup) Rate for Deluxe
Model = batch-level-2 (equipments setup) pool rate batch-level-2 activity cost driver (number of setups) consumption ratio by Deluxe model Units: Dollar/Month
24. Batch-Level-l Cost (Material Handling) Rate for Deluxe Model = batch-level-1 (material handling) pool rate batchlevel-1 activity cost driver (number of moves) consumption
ratio by Deluxe model Units: Dollar/Month
25. Deluxe model cost of goods manufactured = total overhead cost
for Deluxe model + Total Prime Cost of Deluxe Model + Total
Holding Cost of Deluxe Model Units: Dollar
26. Deluxe model cost of goods manufactured per unit = IF THEN
ELSE(Total Production of Deluxe Model N 0,Deluxe model cost of
goods manufactured/Total Production of Deluxe Model, 181.21)
Units: Dollar/Unit
27. Deluxe model holding cost coefcient = 0.05 Units: 1/Month
28. Deluxe model markup = 0.9866 Units: Dmnl
29. Deluxe model order fulllment rates:=GET XLS DATA(FD.xls,

Sheet1, 1, B3) -Units: Order/Month
30. Deluxe Model Production Rate:=GET XLS DATA(PD.xls,
Sheet1, 1, B3) Units: Unit/Month
31. Deluxe model selling price = (1 + Deluxe model markup) Deluxe model cost of goods manufactured per unit Units: Dollar/
Unit
32. Deluxe Model Shipping Rate:=GET XLS DATA(SD.xls, Sheet1,
33. Facility-Level (Providing Space) Cost Rate for Basic Model = facility-level (providing space) pool rate facility-level activity
cost driver (machining hours) consumption ratio by Basic
model Units: Dollar/Month
34. Facility-Level (Providing Space) Cost Rate for Deluxe Model = facility-level (providing space) pool rate facility-level
activity cost driver (machining hours) consumption ratio by
Deluxe model Units: Dollar/Month
35. facility-level (providing space) pool rate = IF THEN ELSE(total
cost of facility-level (providing space) cost pool N 0, total cost
of facility-level (providing space) cost pool/Total Consumption
Facility-Level Cost Pool Activity Driver (Machining Hours), 2)
Units: Dollar/MachiningHr
36. facility-level activity cost driver (machining hours) consumption ratio by Basic model = Basic Model Shipping Rate facility-level activity cost driver consumption ratio by each
unit of Basic model Units: MachiningHr/Month
37. facility-level activity cost driver (machining hours) consumption ratio by Deluxe model = Deluxe Model Shipping Rate facility-level activity cost driver consumption ratio by each unit
of Deluxe model Units: MachiningHr/Month
38. facility-level activity cost driver consumption ratio by each unit
of Basic model = 0.25 Units: MachiningHr/Unit
39. facility-level activity cost driver consumption ratio by each unit
of Deluxe model = 0.5 -Units: MachiningHr/Unit
40. FINAL TIME = 12 Units: Month
41. fractional prime cost ratio for Basic model=80 Units: Dollar/Unit
42. fractional prime cost ratio for Deluxe model = 160 Units:
Dollar/Unit
43. Holdeing Cost Rate of Deluxe Model = holding cost fractional
ratio for Deluxe model Inventory Level of Deluxe Model
Units: Dollar/Month
44. holding cost fractional ratio for Basic model = Basic model
holding cost coefcient Basic model cost of goods manufactured per unit Units: Dollar/(Unit Month)
45. holding cost fractional ratio for Deluxe model = Deluxe model
holding cost coefcient Deluxe model cost of goods manufactured per unit Units: Dollar/(Month Unit)
46. Holding Cost Rate of Basic Model = holding cost fractional ratio
for Basic model Inventory Level of Basic Model Units: Dollar/
Month
47. INITIAL TIME = 1 Units: Month
48. Inventory Level of Basic Model = INTEG (Basic Model Production
Rate-Basic Model Shipping Rate,0) Units: Unit
49. Inventory Level of Deluxe Model = INTEG (Deluxe Model
Production Rate-Deluxe Model Shipping Rate,0) Units:
Unit
50. Prime Cost Rate of Basic Model = Basic Model Production
Rate fractional prime cost ratio for Basic model Units:
Dollar/Month
51. Prime Cost Rate of Deluxe Model = Deluxe Model Production
Rate fractional prime cost ratio for Deluxe model Units:
Dollar/Month
52. order-level-1 activity cost driver (number of orders) consumption ratio by Basic model = Basic model order fulllment
rates order-level-1 activity cost driver consumption ratio by
each order of Basic model Units: Order/Month
53. order-level-1 activity cost driver (number of orders) consumption ratio by Deluxe model = Deluxe model order fulllment
each order of Deluxe model Units: Order/Month
54. order-level-1 activity cost driver consumption ratio by each
order of Basic model = 1 Units: Dmnl
order of Deluxe model = 1 Units: Dmnl
56. Order-level-1 Cost Rate for Basic Model = order-level-1 pool
rate order-level-1 activity cost driver (number of orders)
consumption ratio by Basic model Units: Dollar/Month
57. Order-level-1 Cost Rate for Deluxe Model = order-level-1
activity cost driver (number of orders) consumption ratio by
Deluxe model order-level-1 pool rate Units: Dollar/Month
58. order-level-1 pool rate = IF THEN ELSE(total cost of orderlevel-1 cost pool N 0,total cost of order-level-1 cost pool/Total
Consumption Order-level-1 Cost Pool Activity Driver (Number of
Orders), 173.33) Units: Dollar/Order
59. order-level-2 activity cost driver (maintenances hours) consumption ratio by Basic model = Basic model order fulllment
each order of Basic model Units: MaintenanceHr/Month
60. order-level-2 activity cost driver (maintenances hours) consumption ratio by Deluxe model = order-level-2 activity cost
driver consumption ratio by each order of Deluxe model Deluxe
model order fulllment rates Units: MaintenanceHr/Month
order of Basic model = 4 Units: MaintenanceHr/Order
order of Deluxe model = 6 Units: MaintenanceHr/Order
63. Order-level-2 Cost Rate for Basic Model = order-level-2 activity
cost driver (maintenances hours) consumption ratio by Basic
model order-level-2 pool rate Units: Dollar/Month
64. Order-level-2 Cost Rate for Deluxe Model = order-level-2
activity cost driver (maintenances hours) consumption ratio by
Deluxe model order-level-2 pool rate Units: Dollar/Month
65. order-level-2 pool rate = IF THEN ELSE(total cost of orderlevel-2 cost pool N 0, total cost of order-level-2 cost pool/Total Consumption Order-level-2 Cost Pool Activity Driver (Maintenances Hours), 58.5) Units: Dollar/MaintenanceHr
66. SAVEPER = TIME STEP Units: Month (The frequency with
which output is stored.)
67. TIME STEP = 1 Units: Month (The time step for the simulation.)
68. Total Batch-Level-1 (Material Handling) Cost for Basic Model = INTEG (Batch-Level-1 Cost (Material Handling) Rate for
Basic Model,0) Units: Dollar
69. Total Batch-Level-1 (Material Handling) Cost for Deluxe
Model = INTEG (Batch-Level-l Cost (Material Handling) Rate
for Deluxe Model,0) Units: Dollar
70. total batch-level-1 (material handling) cost = Total BatchLevel-1 (Material Handling) Cost for Basic Model + Total
Batch-Level-1 (Material Handling) Cost for Deluxe Model
-Units: Dollar
71. Total Batch-Level-2 (Equipments Setup) Cost for Basic Model = INTEG (Batch-Level-2 Cost (Equipments Setup) Rate for
72. Total Batch-Level-2 (Equipments Setup) Cost for Deluxe
Model = INTEG (Batch-Level-2 Cost (Equipments Setup) Rate
for Deluxe Model,0) Units: Dollar
73. total batch-level-2 (equipments setup) cost = Total BatchLevel-2 (Equipments Setup) Cost for Basic Model + Total
Batch-Level-2 (Equipments Setup) Cost for Deluxe Model Units: Dollar
74. Total Consumption Batch-Level-1 Cost Pool Activity Driver (Number of Moves)=INTEG (Total Consumption Ratio of Batch-Level-1
Activity Cost Driver (Number of Moves), 1)Units: Move
155
75. Total Consumption Batch-Level-2 Cost Pool Activity Driver (Number of Setups)=INTEG (Total Consumption Ratio of Batch-Level-2
Activity Cost Driver (Number of Setups), 1)Units: Setup
76. Total Consumption Facility-Level Cost Pool Activity Driver
(Machining Hours) = INTEG (Total Consumption Ratio of
Facility-Level Activity Cost Driver (Machining Hours), 1)
Units: MachiningHr
77. Total Consumption Order-level-1 Cost Pool Activity Driver
(Number of Orders) = INTEG (Total Consumption Ratio of
Order-level-1 Activity Cost Driver (Number of Orderss), 1)
Units: Order
78. Total Consumption Order-level-2 Cost Pool Activity Driver
(Maintenances Hours) = INTEG (Total Consumption Ratio of
Order-level-2 Activity Cost Driver (Maintenances Hours), 1)
Units: MaintenanceHr
79. Total Consumption Ratio of Batch-Level-1 Activity Cost Driver
(Number of Moves) = batch-level-1 activity cost driver (number of moves) consumption ratio by Basic model + batchlevel-1 activity cost driver (number of moves) consumption
ratio by Deluxe model Units: Move/Month
80. Total Consumption Ratio of Batch-Level-2 Activity Cost Driver
(Number of Setups) = batch-level-2 activity cost driver (number of setups) consumption ratio by Basic model + batchlevel-2 activity cost driver (number of setups) consumption
ratio by Deluxe model Units: Setup/Month
81. Total Consumption Ratio of Facility-Level Activity Cost Driver
(Machining Hours) = facility-level activity cost driver (machining hours) consumption ratio by Basic model + facilitylevel activity cost driver (machining hours) consumption ratio
by Deluxe model Units: MachiningHr/Month
82. Total Consumption Ratio of Order-level-1 Activity Cost Driver
(Number of Orderss) = order-level-1 activity cost driver
(number of orders) consumption ratio by Basic model + order-level-1 activity cost driver (number of orders) consumption
ratio by Deluxe model Units: Order/Month
83. Total Consumption Ratio of Order-level-2 Activity Cost Driver
(Maintenances Hours) = order-level-2 activity cost driver
(maintenances hours) consumption ratio by Basic model + order-level-2 activity cost driver (maintenances hours) consumption ratio by Deluxe model Units: MaintenanceHr/Month
84. total cost of facility-level (providing space) cost pool = Total
Facility-Level (Providing Space) Cost for Basic Model + Total
Facility-Level (Providing Space) Cost for Deluxe Model Units:
Dollar
85. total cost of order-level-1 cost pool = Total Order-level-1 Cost
for Basic Model + Total Order-level-1 Cost for Deluxe Model Units: Dollar
86. total cost of order-level-2 cost pool = Total Order-level-2 Cost
for Basic Model + Total Order-level-2 Cost for Deluxe Model Units: Dollar
87. Total Facility-Level (Providing Space) Cost for Basic Model = INTEG (Facility-Level (Providing Space) Cost Rate for Basic
Model,0) Units: Dollar
88. Total Facility-Level (Providing Space) Cost for Deluxe Model = INTEG (Facility-Level (Providing Space) Cost Rate for
Deluxe Model,0) Units: Dollar
89. Total Holding Cost of Basic Model = INTEG (Holding Cost Rate of
90. Total Holding Cost of Deluxe Model = INTEG (Holdeing Cost Rate
of Deluxe Model,0) Units: Dollar
91. total overhead cost for Basic model = Total Batch-Level-1
(Material Handling) Cost for Basic Model + Total BatchLevel-2 (Equipments Setup) Cost for Basic Model + Total
Facility-Level (Providing Space) Cost for Basic Model + Total
Order-level-1 Cost for Basic Model + Total Order-level-2 Cost
for Basic Model Units: Dollar
156
92. total overhead cost for Deluxe model = Total Batch-Level-1

(Material Handling) Cost for Deluxe Model + Total BatchLevel-2 (Equipments Setup) Cost for Deluxe Model + Total
Facility-Level (Providing Space) Cost for Deluxe Model + Total
Order-level-1 Cost for Deluxe Model + Total Order-level-2
Cost for Deluxe Model Units: Dollar
93. Total Prime Cost of Basic Model = INTEG (Prime Cost Rate of
94. Total Prime Cost of Deluxe Model = INTEG (Prime Cost Rate of
Deluxe Model,0) Units: Dollar
95. Total Order-level-1 Cost for Basic Model = INTEG (Orderlevel-1 Cost Rate for Basic Model,0) Units: Dollar
96. Total Order-level-1 Cost for Deluxe Model = INTEG (Orderlevel-1 Cost Rate for Deluxe Model,0) Units: Dollar
97. Total Order-level-2 Cost for Basic Model = INTEG (Orderlevel-2 Cost Rate for Basic Model,0) Units: Dollar
98. Total Order-level-2 Cost for Deluxe Model = INTEG (Orderlevel-2 Cost Rate for Deluxe Model,0) Units: Dollar
99. Total Production of Basic Model = INTEG (Basic Model Production Rate,0) Units: Unit
100. Total Production of Deluxe Model = INTEG (Deluxe Model
Production Rate, 0) - Units: Unit
101. Total Sales of Basic Model = INTEG (Basic Model Shipping
Rate,1) Units: Unit
102. Total Sales of Deluxe Model = INTEG (Deluxe Model Shipping
Rate,1) Units: Unit
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Amir H. Khataie obtained his B.Sc. degree in Industrial Engineering in 2005 from Amir
Kabir University of Technology (Tehran Polytechnic) consequently; he received M. Eng.
degree in Engineering Management from the University of Ottawa in August 2007.
Currently he is a part-time faculty and PhD candidate in the department of Mechanical
and Industrial Engineering at Concordia University. Amir H. Khataie research
preferences are within hybrid hard and soft OR modeling approach, supply chain
management, activity-based costing. His current research is application of accounting
approaches in developing supply chain cost management Decision Support Systems.
Dr. Akif A. Bulgak is a professor at the Department of Mechanical and Industrial
Engineering at Concordia University. He obtained his B.Sc. degree from Istanbul
Technical University in Mechanical/Industrial Engineering and his M.Sc. and Ph.D.
degrees from the University of Wisconsin-Madison, USA, all in Industrial Engineering.
Dr. Bulgak's research areas include Modeling, Performance Evaluation, Design
Optimization, and Economics of Flexible Manufacturing/Assembly Systems, Stochastic
Optimization, and Revenue Management, and Supply Chain Management. Dr. Bulgak is
a registered professional engineer at Professional Engineers Ontario.
Dr. Juan J. Segovia is currently an Associate Professor of Accountancy in the John
Molson School of Business, Concordia University, Montreal, Canada. He obtained his
Doctorate in Business Administration in 1979 from the University of Paris-Dauphine,
France. From the same university, he obtained the Diplme d'tudes Approfondies:
Business Administration (DEA). Professor Segovia obtained the degree of Bachelor of
Commerce Major: Accounting, from the Universidad de Guanajuato, Mexico. His area
of research includes Accounting Education and Management Accounting. His papers
have been published in various prestigious journals, e.g., The British Accounting
Review, The Accounting Educators' Journal, CMA Magazine, Journal of Business and
Behavioural Sciences. In addition, he has presented at several conferences both national
and international. His research interests are in the areas of Accounting Education,
Activity-Based Costing (ABC), Activity-Based Management (ABM), Performance
Measurements, and Business Strategy.

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Decision Support Systems 52 (2011) 142156

Contents lists available at ScienceDirect

Decision Support Systems

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

traditional optimization-based models cannot fulll this requirement.

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

supply chains members have been forced to use hybrid business

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

Prime Costs +Holding Cost

cost in a production process in a more precise and reliable manner as

No. Of Moves No. Of Setups

Define the Order Fulfillment Cost

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

prime cost of product i

In order to develop the multi-objective function we used WGP

Pit t i j k ak uijk Bijt

qijr Siot i t hi Iit m4 l m1 dl + m2 dl

i j uijk Bijt Ukt

Pit = bij Bijt

The ratio of Order Fulllment is represented with the proportion

Siot = Diot Yiot

Constraints (7) incorporate the management discretionary factor

Iit1 + Pit Iit = o Siot

Finally, constraints (12) to (14) are the non-negativity constraints,

The model has an illustrative emphasis on the effect of overhead

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

product. An applicable holding cost (hi) is assumed to be equal to 5% of

facility-level costs (xed overhead costs) by relaxing the constraint of

5 or less fullling rate %

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

evaluation of the system status can be used in cost monitoring process

auxiliary variables to avoid the model to be crowded and unclear.

Hybrid MIP-SD Decision Support System

ABC/M information system

Fig. 3. Hybrid Order Management Decision Support System.

Fulfillment Policy Spreadsheet

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

Deluxe model holding

<Deluxe model cost of goods

Holdeing Cost Rate of

Basic model holding

Holding Cost Rate of

Total Holding Cost

Total Holding Cost

holding cost fractional

supplier, and receiving goods; it is presented in Fig. 7. In this case the

batch-level-2 activity driver consumption ratio, which is similar to the

Batch-Level-l Cost (Material

batch-level-1 activity cost driver

batch-level-1 activity cost driver

Total Consumption Ratio of

Total Consumption Batch-Level-1

A.H. Khataie et al. / Decision Support Systems 52 (2011) 142156

batch-level-2 activity cost driver

batch-level-2 activity cost driver

Total Consumption Ratio of

Total Consumption Batch-Level-2

batch-level-2 activity cost driver

order-level-1 activity cost driver