Article ID: | iaor20107381 |
Volume: | 58 |
Issue: | 5 |
Start Page Number: | 1328 |
End Page Number: | 1349 |
Publication Date: | Sep 2010 |
Journal: | Operations Research |
Authors: | zer zalp, Boyac Tamer |
Keywords: | capacity planning |
This paper investigates a capacity planning strategy that collects commitments to purchase before the capacity decision and uses the acquired advance sales information to decide on the capacity. In particular, we study a profit-maximization model in which a manufacturer collects advance sales information periodically prior to the regular sales season for a capacity decision. Customer demand is stochastic and price sensitive. Once the capacity is set, the manufacturer produces and satisfies customer demand (to the extent possible) from the installed capacity during the regular sales period. We study scenarios in which the advance sales and regular sales season prices are set exogenously and optimally. For both scenarios, we establish the optimality of a