InternationalJournalofProductionResearchVol.48,No.17,1September2010,5007–5020Amulti-objectiveoptimisationapproachforordermanagement:incorporatingactivity-basedcostinginsupplychainsAmirhosseinKhataie,FantahunM.DefershaandAkifAsilBulgak*DepartmentofMechanicalandIndustrialEngineering,ConcordiaUniversity,1455deMaisonneuveBlvd.,WestMontre´al(Que´bec),Canada,H3G1M8(Received26January2009;finalversionreceived6May2009)Mostofthesupplychainordermanagementdecisionmakingmodelsproposedintheliteraturearebasedmainlyonthematerialflowandcapacityconstraintswithoutanyconsiderationtotheprofitabilityfactor.Inthispaper,wedevelopamulti-objectivemixed-integerprogramming(MIP)modelwhichconsidersprofitabilityinordertoeffectivelymanageorderacceptancedecisionsinsupplychains,subjecttocapacityconstraintsbyusingactivity-basedcosting(ABC).Whilethereareanumbersofdecision-makingmodelsinliteratureintegratingABCinsupplychains,thisstudyexpandsthepreviousmodelswithamorecustomer-orientedapproach.Theproposedmodelfulfilsadesirableamountoforderscompletelyandacceptsselectivenumberoforderspartiallywithanobjectiveofminimisingtheamountofresidualcapacityandincreasingtheprofitability.Keywords:activity-basedcosting;supplychainmanagement;profitability;mixed-integerprogramming;goalprogramming1.IntroductionAggregateproductionplanningfocusesonhowtomanagetheordersinamanufacturingbusinessaggregately.Thecapacityisalwayslimitedandtheproductioncostisafunctionofexternalfactors,suchastheinflationrateandrawmaterialcosts,aswellasinternalparametersliketherateofautomationandtheefficiencyoftheproductionunit.Themanufacturingbusinesscangreatlybenefitfromadynamicapproachwhichdetermineshowtheordersshouldbetreated.Thiscanbereachedthroughadecision-makingmodelthatconcurrentlyconsidersprofitabilityandcapacityusageofeachorder.Thereareseveralessentialaspectsuponwhichsuchamodelshouldevaluate:short-termprofitability,long-termstabilityandcustomerloyalty.Oneoftheimportantcriteriaisshort-termprofitability.This