MODELS FOR CAPACITY ACQUISITION DECISIONS CONSIDERING OPERATIONAL COSTS

In this article, we study a capacity acquisition problem by considerin g technology choice and operational factors in a stochastic environmen t. The motivation for our work comes from developments in modern flexi ble technologies and a problem encountered in a real industrial settin g. We study the impact of operational factors such as setup times, dem and patterns, and inventory/back order costs on the decisions of capac ity acquisition and technology choice. We consider three alternatives in capacity and technology decisions: (i) a flexible system, (ii) a de dicated system, and (iii) a combination of these two systems. For each system, we develop a model that integrates investment decisions and o perational decisions to determine an optimal amount of capacity to pur chase and the time and the types of parts to produce. The objective is to minimize the capacity acquisition cost at the beginning of the pla nning horizon and the total expected operational costs over an infinit e planning horizon. To solve the problem in this article, a solution p rocedure is proposed. Managerial insights are also derived from extens ive computational results.