The effects of lead time on plant timing and size

An important issue in planning capacity expansion under uncertain demand is the effect of lead time on the timing of plant construction. The present model helps decide whether (1) plant construction is initiated after a certain deficit is accumulated, or (2) plant construction is initiated ahead of demand when a certain capacity surplus is reached. In addition to the analytical results, the authors present computational results to show that is is economically attractive to delay plant construction beyond the time when existing excess capacity becomes fully absorbed, with relatively short construction lead time.