Risk-sensitive sizing of responsive facilities
dc.contributor.author | Chayet, Sergio | en_US |
dc.contributor.author | Hopp, Wallace John | en_US |
dc.date.accessioned | 2008-03-31T18:41:11Z | |
dc.date.available | 2009-04-09T15:01:14Z | en_US |
dc.date.issued | 2008-04 | en_US |
dc.identifier.citation | Chayet, Sergio; Hopp, Wallace J. (2008). "Risk-sensitive sizing of responsive facilities." Naval Research Logistics 55(3): 218-233. <http://hdl.handle.net/2027.42/58077> | en_US |
dc.identifier.issn | 0894-069X | en_US |
dc.identifier.issn | 1520-6750 | en_US |
dc.identifier.uri | https://hdl.handle.net/2027.42/58077 | |
dc.description.abstract | We develop a risk-sensitive strategic facility sizing model that makes use of readily obtainable data and addresses both capacity and responsiveness considerations. We focus on facilities whose original size cannot be adjusted over time and limits the total production equipment they can hold, which is added sequentially during a finite planning horizon. The model is parsimonious by design for compatibility with the nature of available data during early planning stages. We model demand via a univariate random variable with arbitrary forecast profiles for equipment expansion, and assume the supporting equipment additions are continuous and decided ex-post. Under constant absolute risk aversion, operating profits are the closed-form solution to a nontrivial linear program, thus characterizing the sizing decision via a single first-order condition. This solution has several desired features, including the optimal facility size being eventually decreasing in forecast uncertainty and decreasing in risk aversion, as well as being generally robust to demand forecast uncertainty and cost errors. We provide structural results and show that ignoring risk considerations can lead to poor facility sizing decisions that deteriorate with increased forecast uncertainty. Existing models ignore risk considerations and assume the facility size can be adjusted over time, effectively shortening the planning horizon. Our main contribution is in addressing the problem that arises when that assumption is relaxed and, as a result, risk sensitivity and the challenges introduced by longer planning horizons and higher uncertainty must be considered. Finally, we derive accurate spreadsheet-implementable approximations to the optimal solution, which make this model a practical capacity planning tool.© 2008 Wiley Periodicals, Inc. Naval Research Logistics, 2008 | en_US |
dc.format.extent | 338054 bytes | |
dc.format.extent | 3118 bytes | |
dc.format.mimetype | application/pdf | |
dc.format.mimetype | text/plain | |
dc.publisher | Wiley Subscription Services, Inc., A Wiley Company | en_US |
dc.subject.other | Mathematics and Statistics | en_US |
dc.title | Risk-sensitive sizing of responsive facilities | en_US |
dc.type | Article | en_US |
dc.rights.robots | IndexNoFollow | en_US |
dc.subject.hlbsecondlevel | Industrial and Operations Engineering | en_US |
dc.subject.hlbtoplevel | Engineering | en_US |
dc.description.peerreviewed | Peer Reviewed | en_US |
dc.contributor.affiliationum | Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130 ; Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109 | en_US |
dc.contributor.affiliationum | Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109 | en_US |
dc.description.bitstreamurl | http://deepblue.lib.umich.edu/bitstream/2027.42/58077/1/20278_ftp.pdf | |
dc.identifier.doi | http://dx.doi.org/10.1002/nav.20278 | en_US |
dc.identifier.source | Naval Research Logistics | en_US |
dc.owningcollname | Interdisciplinary and Peer-Reviewed |
Files in this item
Remediation of Harmful Language
The University of Michigan Library aims to describe library materials in a way that respects the people and communities who create, use, and are represented in our collections. Report harmful or offensive language in catalog records, finding aids, or elsewhere in our collections anonymously through our metadata feedback form. More information at Remediation of Harmful Language.
Accessibility
If you are unable to use this file in its current format, please select the Contact Us link and we can modify it to make it more accessible to you.