Capacity acquisition and disposal with discrete facility sizes

Capacity acquisition and disposal with discrete facility sizes

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Article ID: iaor1995831
Country: United States
Volume: 40
Issue: 7
Start Page Number: 903
End Page Number: 917
Publication Date: Jul 1994
Journal: Management Science
Authors: ,
Keywords: equipment, programming: integer
Abstract:

The authors consider some key features of capacity acquisition, disposal, and replacement decisions in this paper that are seldom captured in capacity expansion models in the literature. First, capacity is often purchased in the form of equipment which comes only in a few discrete sizes. Second, some or all of the capacity may be replaced periodically due to the availability of better and cheaper equipment, or due to deterioration and increased operating costs of older equipment. Finally, some capacity may be disposed due to declining demand. The authors present integer programming formulations that model all of these aspects. They identify special structures in these formulations that are then exploited to develop efficient procedures for solving the linear relaxation optimally. The solution to the linear relaxation together with a heuristic interchange procedure are used in a branch-and-bound procedure to obtain optimal solutions. Computational results are presented that establish the effectiveness of the procedures in solving realistic problems to optimality.

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