A scenario approach to capacity planning

Production capacity has always been one of the most important strategic variables for the major automobile companies. Decisions by individual companies concerning the overall level of capacity, the type of facility (e.g., the level of flexibility), and the location of that capacity (e.g., in the United States or abroad) are discussed in great detail in the popular business press. In this paper, the authors describe a model developed for General Motors to aid in making decisions about capacity for four of their auto lines. The model incorporates elements of scenario planning, integer programming, and risk analysis. All the input and output is done using Lotus 1-2-3. Although the presentation is motivated by the particular application in the auto industry, the model represents a general purpose approach that is applicable to a wide variety of decisions under risk. An example in this paper uses actual data, appropriately transformed to ensure confidentiality.