IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v50y2003i2p105-129.html
   My bibliography  Save this article

Investment in production resource flexibility: An empirical investigation of methods for planning under uncertainty

Author

Listed:
  • Elena Katok
  • William Tarantino
  • Terry P. Harrison

Abstract

We examine several methods for evaluating resource acquisition decisions under uncertainty. Traditional methods may underestimate equipment benefit when part of this benefit comes from decision flexibility. We develop a new, practical method for resource planning under uncertainty, and show that this approach is more accurate than several commonly used methods. We successfully applied our approach to an investment problem faced by a major firm in the aviation information industry. Our recommendations were accepted and resulted in estimated annual savings in excess of $1 million (US). © 2003 Wiley Periodicals, Inc. Naval Research Logistics, 2003

Suggested Citation

  • Elena Katok & William Tarantino & Terry P. Harrison, 2003. "Investment in production resource flexibility: An empirical investigation of methods for planning under uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(2), pages 105-129, March.
    • Handle: RePEc:wly:navres:v:50:y:2003:i:2:p:105-129
    DOI: 10.1002/nav.10059
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/nav.10059
    Download Restriction: no
    File URL: https://libkey.io/10.1002/nav.10059?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fernando F. Suarez & Michael A. Cusumano & Charles H. Fine, 1996. "An Empirical Study of Manufacturing Flexibility in Printed Circuit Board Assembly," Operations Research, INFORMS, vol. 44(1), pages 223-240, February.
    2. James E. Smith & Robert F. Nau, 1995. "Valuing Risky Projects: Option Pricing Theory and Decision Analysis," Management Science, INFORMS, vol. 41(5), pages 795-816, May.
    3. Benjaafar, Saifallah & Morin, Thomas L. & Talavage, Joseph J., 1995. "The strategic value of flexibility in sequential decision making," European Journal of Operational Research, Elsevier, vol. 82(3), pages 438-457, May.
    4. Gabriel R. Bitran & Horacio H. Yanasse, 1984. "Deterministic Approximations to Stochastic Production Problems," Operations Research, INFORMS, vol. 32(5), pages 999-1018, October.
    5. William C. Jordan & Stephen C. Graves, 1995. "Principles on the Benefits of Manufacturing Process Flexibility," Management Science, INFORMS, vol. 41(4), pages 577-594, April.
    6. James E. Smith & Kevin F. McCardle, 1998. "Valuing Oil Properties: Integrating Option Pricing and Decision Analysis Approaches," Operations Research, INFORMS, vol. 46(2), pages 198-217, April.
    7. Gupta, Diwakar & Gerchak, Yigal & Buzacott, John A., 1992. "The optimal mix of flexible and dedicated manufacturing capacities: Hedging against demand uncertainty," International Journal of Production Economics, Elsevier, vol. 28(3), pages 309-319, December.
    8. David R. Cariño & Terry Kent & David H. Myers & Celine Stacy & Mike Sylvanus & Andrew L. Turner & Kouji Watanabe & William T. Ziemba, 1994. "The Russell-Yasuda Kasai Model: An Asset/Liability Model for a Japanese Insurance Company Using Multistage Stochastic Programming," Interfaces, INFORMS, vol. 24(1), pages 29-49, February.
    9. Xavier de Groote, 1994. "The Flexibility of Production Processes: A General Framework," Management Science, INFORMS, vol. 40(7), pages 933-945, July.
    10. Jan A. Van Mieghem, 1998. "Investment Strategies for Flexible Resources," Management Science, INFORMS, vol. 44(8), pages 1071-1078, August.
    11. Gary D. Eppen & R. Kipp Martin & Linus Schrage, 1989. "OR Practice—A Scenario Approach to Capacity Planning," Operations Research, INFORMS, vol. 37(4), pages 517-527, August.
    12. Donald Gerwin, 1993. "Manufacturing Flexibility: A Strategic Perspective," Management Science, INFORMS, vol. 39(4), pages 395-410, April.
    13. Charles H. Fine & Robert M. Freund, 1990. "Optimal Investment in Product-Flexible Manufacturing Capacity," Management Science, INFORMS, vol. 36(4), pages 449-466, April.
    14. John M. Mulvey & Gordon Gould & Clive Morgan, 2000. "An Asset and Liability Management System for Towers Perrin-Tillinghast," Interfaces, INFORMS, vol. 30(1), pages 96-114, February.
    15. Gupta, Yash P. & Goyal, Sameer, 1989. "Flexibility of manufacturing systems: Concepts and measurements," European Journal of Operational Research, Elsevier, vol. 43(2), pages 119-135, November.
    16. Ramasesh, Ranga V. & Jayakumar, Maliyakal D., 1997. "Inclusion of flexibility benefits in discounted cash flow analyses for investment evaluation: A simulation/optimization model," European Journal of Operational Research, Elsevier, vol. 102(1), pages 124-141, October.
    17. Sinha, Diptendu & Wei, Jerry C., 1992. "Stochastic analysis of flexible process choices," European Journal of Operational Research, Elsevier, vol. 60(2), pages 183-199, July.
    18. Bitran, G. R. & Sarkar, D., 1988. "On upper bounds of sequential stochastic production planning problems," European Journal of Operational Research, Elsevier, vol. 34(2), pages 191-207, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan E. Karisch & William J. Tarantino, 2013. "ASP, The Art and Science of Practice: From Edelman Award to INFORMS Prize—Jeppesen’s 15-Year Journey Toward Analytics Excellence and Lessons Learned Along the Way," Interfaces, INFORMS, vol. 43(6), pages 554-565, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francas, David & Löhndorf, Nils & Minner, Stefan, 2011. "Machine and labor flexibility in manufacturing networks," International Journal of Production Economics, Elsevier, vol. 131(1), pages 165-174, May.
    2. Manu Goyal & Serguei Netessine, 2011. "Volume Flexibility, Product Flexibility, or Both: The Role of Demand Correlation and Product Substitution," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 180-193, March.
    3. Ebru K. Bish & Ana Muriel & Stephan Biller, 2005. "Managing Flexible Capacity in a Make-to-Order Environment," Management Science, INFORMS, vol. 51(2), pages 167-180, February.
    4. Chandra, Charu & Everson, Mark & Grabis, Janis, 2005. "Evaluation of enterprise-level benefits of manufacturing flexibility," Omega, Elsevier, vol. 33(1), pages 17-31, February.
    5. Brian Tomlin & Yimin Wang, 2005. "On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 37-57, June.
    6. Hongmin Li & Stephen C. Graves & Woonghee Tim Huh, 2014. "Optimal Capacity Conversion for Product Transitions Under High Service Requirements," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 46-60, February.
    7. Manu Goyal & Serguei Netessine, 2007. "Strategic Technology Choice and Capacity Investment Under Demand Uncertainty," Management Science, INFORMS, vol. 53(2), pages 192-207, February.
    8. Bo Liao & Candace Arai Yano & Shiva Esturi, 2017. "Optimizing Site Qualification Across the Supply Network at Western Digital," Interfaces, INFORMS, vol. 47(4), pages 305-319, August.
    9. Yang, Liu & Ng, C.T., 2014. "Flexible capacity strategy with multiple market periods under demand uncertainty and investment constraint," European Journal of Operational Research, Elsevier, vol. 236(2), pages 511-521.
    10. Brian Tomlin & Yimin Wang, 2008. "Pricing and Operational Recourse in Coproduction Systems," Management Science, INFORMS, vol. 54(3), pages 522-537, March.
    11. Barad, M. & Even Sapir, D., 2003. "Flexibility in logistic systems--modeling and performance evaluation," International Journal of Production Economics, Elsevier, vol. 85(2), pages 155-170, August.
    12. Stephen C. Graves & Brian T. Tomlin, 2003. "Process Flexibility in Supply Chains," Management Science, INFORMS, vol. 49(7), pages 907-919, July.
    13. Marta Pérez Pérez & Ana María Serrano Bedia & María Concepción López Fernández, 2016. "A review of manufacturing flexibility: systematising the concept," International Journal of Production Research, Taylor & Francis Journals, vol. 54(10), pages 3133-3148, May.
    14. Liu Yang & Chi To Ng & Yaodong Ni, 2017. "Flexible capacity strategy in an asymmetric oligopoly market with competition and demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 64(2), pages 117-138, March.
    15. Achal Bassamboo & Ramandeep S. Randhawa & Jan A. Van Mieghem, 2010. "Optimal Flexibility Configurations in Newsvendor Networks: Going Beyond Chaining and Pairing," Management Science, INFORMS, vol. 56(8), pages 1285-1303, August.
    16. Sagi Akron & Roy Gelbard, 2020. "Software code flexibility profitability in light of technology life cycle," Operational Research, Springer, vol. 20(2), pages 723-746, June.
    17. Wallace J. Hopp & Seyed M. R. Iravani & Wendy Lu Xu, 2010. "Vertical Flexibility in Supply Chains," Management Science, INFORMS, vol. 56(3), pages 495-502, March.
    18. Dipankar Bose & A. K. Chatterjee & Samir Barman, 2016. "Towards dominant flexibility configurations in strategic capacity planning under demand uncertainty," OPSEARCH, Springer;Operational Research Society of India, vol. 53(3), pages 604-619, September.
    19. Francas, David & Kremer, Mirko & Minner, Stefan & Friese, Markus, 2009. "Strategic process flexibility under lifecycle demand," International Journal of Production Economics, Elsevier, vol. 121(2), pages 427-440, October.
    20. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:navres:v:50:y:2003:i:2:p:105-129. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.