Campus Units

Industrial and Manufacturing Systems Engineering

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2003

Journal or Book Title

Naval Research Logistics

Volume

50

Issue

2

First Page

167

Last Page

183

DOI

10.1002/nav.10055

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.

Comments

This is the peer reviewed version of the following article: Ryan, S. M., “Capacity Expansion with Lead Times and Correlated Random Demand,” Naval Research Logistics, 50(2), pp. 167-183 (2003), which has been published in final form at http://dx.doi.org/10.1002/nav.10055. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Copyright Owner

Wiley Periodicals, Inc.

Language

en

File Format

application/pdf

Published Version

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