Decentralized planning with an interdependent marketing-production system

An interdependent marketing-production planning model based on control theory is described. The interdependent model is a composition of the Vidale-Wolfe model relating advertising rates to sales rates, and the Holt, Modigliani, Muth & Simon (HMMS) production inventory planning model. An overall optimal marketing-production plan is identified using the interdependent model. This overall optimal plan (resulting from centralized planning) is then used as a reference point to measure the effectiveness of decentralized planning approaches. It is found that in some cases almost no coordination is necessary, in some cases the use of a transfer price leads to good decentralized planning, and in other cases centralized planning must be employed to achieve good results. Several examples are presented to illustrate the cases in which decentralized planning does and does not work well.