Risk-Based Integration of Strategic and Tactical Capacity Planning

Sunder Kekre, Uday Rao (), Samarth Sarthi and Jinxin Yi

Annals of Operations Research, 2004, vol. 132, issue 1, 85-108

Abstract: 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. Copyright Kluwer Academic Publishers 2004

Keywords: capacity; production planning; profit-risk frontier (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1023/B:ANOR.0000045278.94269.1b

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