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Presentation
Optimal Solution to a Capacity Expansion Problem
Proceedings of the 2006 Industrial Engineering Research Conference
  • Rahul R. Marathe, Iowa State University
  • Sarah M. Ryan, Iowa State University
Document Type
Conference Proceeding
Publication Version
Published Version
Publication Date
1-1-2006
Conference Title
IIE Annual Conference
Conference Date
2006
Abstract

For a service provider, stochastic demand growth along with expansion lead times and economies of scale may encourage delaying the start of expansion until after some shortages have been accumulated. Assuming demand follows a geometric Brownian motion, we define the service level in terms of the proportion of demand satisfied, which is then analytically evaluated using financial option pricing theory. Under a stationary expansion policy, an infinite time horizon discounted expansion cost is minimized under the service level constraint, where the expansion timing and size parameters are the decision variables. With the current formulation, the problem seems to be unbounded.

Comments

This is a proceeding published as Rahul R. Marathe and Sarah M. Ryan; Optimal Solution to a Capacity Expansion Problem. IIE Annual Conference. Proceedings 2006. Posted with permission.

Copyright Owner
IIE
Language
en
File Format
application/pdf
Citation Information
Rahul R. Marathe and Sarah M. Ryan. "Optimal Solution to a Capacity Expansion Problem" Proceedings of the 2006 Industrial Engineering Research Conference (2006)
Available at: http://works.bepress.com/sarah_m_ryan/107/