Production network, technology choice, capacity investment and inventory sourcing decisions: operational hedging under demand uncertainty

J. Prince Vijai ()
Additional contact information
J. Prince Vijai: ICFAI Business School, The ICFAI Foundation for Higher Education, (Deemed-To-Be-University U/S 3 of the UGC Act, 1956)

OPSEARCH, 2021, vol. 58, issue 4, No 17, 1164-1191

Abstract: Abstract Our research is motivated by capacity investment and inventory sourcing decisions that firms make while investing in multi-plant production facilities to offer products and services to the markets. We study the strategic choice between investing alternative technologies in a production network and examine for conditions under which flexible technology to be chosen over dedicated technology and vice-versa. We model a firm’s technology choice, capacity investment, and inventory sourcing decisions in face of demand uncertainty as a two-stage stochastic optimization problem for a production network. We conduct numerical studies to examine a situation under which flexible technology to be chosen over dedicated technology in a production network. We observe that optimal amount of capacity to be acquired in a production network with flexible technology is less compared to a network with dedicated technologies. However, optimal levels of inventories to be sourced in a production network with flexible technology is more compared to a network with dedicated technologies. We show that a production network with flexible technology can hedge against demand uncertainty using operational measures such as extra inventory and flexible capacity; in case products demand is either negatively or positively correlated then the value of investing in flexible technology in a production network diminishes.

Keywords: Production network; Technology choice; Capacity; Inventory; Demand uncertainty; Operational hedging; Stochastic optimization (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s12597-021-00511-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:opsear:v:58:y:2021:i:4:d:10.1007_s12597-021-00511-x

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/12597

DOI: 10.1007/s12597-021-00511-x

Access Statistics for this article

OPSEARCH is currently edited by Birendra Mandal

More articles in OPSEARCH from Springer, Operational Research Society of India
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().