Risk-Based Integration of Strategic and Tactical Capacity Planning

We consider capacity management with a long-term strategic choice, such as the number of production lines to install before demand is known, and short-term tactical decisions relating to production, inventory, and subcontracting (recourse actions made after demand is known). We present an integrated scenario-based mathematical modeling and solution framework. For a single-product environment, we examine properties of total profit as a function of demand and the long-term capacity z. We investigate two measures of risk (profit variance and mean downside risk) and their corresponding profit-risk frontiers. Computational experiments are used to illustrate parameter sensitivity results obtained from the model.

[1]  G. Zsidisin,et al.  Purchasing organization involvement in risk assessments, contingency plans, and risk management: an exploratory study , 2000 .

[2]  Philippe Artzner,et al.  Coherent Measures of Risk , 1999 .

[3]  W. Sharpe,et al.  Mean-Variance Analysis in Portfolio Choice and Capital Markets , 1987 .

[4]  M. Peters,et al.  A multivariate utility function approach to stochastic capacity planning , 1987 .

[5]  S. Fotopoulos.  Stochastic modeling and analysis of manufacturing systems , 1996 .

[6]  Morris A. Cohen,et al.  Global Supply Chain Management: A Survey of Research and Applications , 1999 .

[7]  Hanan Luss,et al.  Operations Research and Capacity Expansion Problems: A Survey , 1982, Oper. Res..

[8]  Amitabh S. Raturi,et al.  On incorporating business risk into continuous review inventory models , 1994 .

[9]  Moshe Shaked,et al.  Stochastic orders and their applications , 1994 .

[10]  Linus Schrage,et al.  OR Practice - A Scenario Approach to Capacity Planning , 1989, Oper. Res..

[11]  Scott M. Carr,et al.  The Inverse Newsvendor Problem: Choosing an Optimal Demand Portfolio for Capacitated Resources , 2000 .

[12]  Charles H. Fine,et al.  Optimal investment in product-flexible manufacturing capacity , 1990 .

[13]  Alan Scheller-Wolf,et al.  Development of a Rapid-Response Supply Chain at Caterpillar , 2000, Oper. Res..

[14]  U. Karmarkar,et al.  Manufacturing configuration, capacity and mix decisions considering operational costs , 1987 .

[15]  J. Michael Harrison,et al.  Multi-Resource Investment Strategies: Operational Hedging Under Demand Uncertainty , 1997, Eur. J. Oper. Res..

[16]  E. Lehmann.  Some Concepts of Dependence , 1966 .

[17]  W. H. Hausman,et al.  Optimal centralized ordering policies in multi-echelon inventory systems with correlated demands , 1990 .

[18]  B. Rustem,et al.  Robust capacity planning under uncertainty , 1991 .

[19]  M. Dempster,et al.  Optimal capacity expansion under uncertainty , 1987, Advances in Applied Probability.