Risk-based integration of strategic and tactical capacity planning

Risk-based integration of strategic and tactical capacity planning

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Article ID: iaor20051292
Country: Netherlands
Volume: 132
Issue: 1
Start Page Number: 85
End Page Number: 108
Publication Date: Nov 2004
Journal: Annals of Operations Research
Authors: , , ,
Keywords: planning
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.

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