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Capacity expansion with lead times and autocorrelated random demand

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  • Sarah M. Ryan

Abstract

The combination of uncertain demand and lead times for installing capacity creates the risk of shortage during the lead time, which may have serious consequences for a service provider. This paper analyzes a model of capacity expansion with autocorrelated random demand and a fixed lead time for adding capacity. To provide a specified level of service, a discrete time expansion timing policy uses a forecast error‐adjusted minimum threshold level of excess capacity position to trigger an expansion. Under this timing policy, the expansion cost can be minimized by solving a deterministic dynamic program. We study the effects of demand characteristics and the lead time length on the capacity threshold. Autocorrelation acts similarly to randomness in hastening expansions but has a smaller impact, especially when lead times are short. However, the failure either to recognize autocorrelation or to accurately estimate its extent can cause substantial policy errors. © 2003 Wiley Periodicals, Inc. Naval Research Logistics, 2003

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  • Sarah M. Ryan, 2003. "Capacity expansion with lead times and autocorrelated random demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(2), pages 167-183, March.
    • Handle: RePEc:wly:navres:v:50:y:2003:i:2:p:167-183
    DOI: 10.1002/nav.10055
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    References listed on IDEAS

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    Cited by:

    1. Van-Anh Truong & Robin O. Roundy, 2011. "Multidimensional Approximation Algorithms for Capacity-Expansion Problems," Operations Research, INFORMS, vol. 59(2), pages 313-327, April.
    2. Chien, Chen-Fu & Wu, Cheng-Hung & Chiang, Yu-Shian, 2012. "Coordinated capacity migration and expansion planning for semiconductor manufacturing under demand uncertainties," International Journal of Production Economics, Elsevier, vol. 135(2), pages 860-869.
    3. Alexandar Angelus & Evan L. Porteus, 2008. "An Asset Assembly Problem," Operations Research, INFORMS, vol. 56(3), pages 665-680, June.
    4. Woonghee Tim Huh & Robin O. Roundy & Metin Çakanyildirim, 2006. "A general strategic capacity planning model under demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(2), pages 137-150, March.

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