IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v41y1994i4p545-564.html
   My bibliography  Save this article

A stochastic optimization model for planning capacity expansion in a service industry under uncertain demand

Author

Listed:
  • Oded Berman
  • Zvi Ganz
  • Janet M. Wagner

Abstract

A stochastic optimization model for capacity expansion for a service industry that incorporates uncertainty in future demand is developed. Based on a weighted set of possible demand scenarios, the model generates a recommended schedule of capacity expressions, and calculates the resulting sales under each scenario. The capacity schedule specifies the size, location, and timing of these expansions that will maximize the company's expected profit. The model includes a budget constraint on available resources. By using Lagrangian relaxation and exploiting the special nested knapsack structure in the sub‐problems, an algorithm was developed for its solution. Based on the initial computational results, this algorithm appears to be more efficient than linear programming for this special problem. © 1994 John Wiley & Sons, Inc.

Suggested Citation

  • Oded Berman & Zvi Ganz & Janet M. Wagner, 1994. "A stochastic optimization model for planning capacity expansion in a service industry under uncertain demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(4), pages 545-564, June.
    • Handle: RePEc:wly:navres:v:41:y:1994:i:4:p:545-564
    DOI: 10.1002/1520-6750(199406)41:43.0.CO;2-Z
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/1520-6750(199406)41:43.0.CO;2-Z
    Download Restriction: no
    File URL: https://libkey.io/10.1002/1520-6750(199406)41:43.0.CO;2-Z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. James C. Bean & Julia L. Higle & Robert L. Smith, 1992. "Capacity Expansion Under Stochastic Demands," Operations Research, INFORMS, vol. 40(3-supplem), pages 210-216, June.
    2. Ganz, Zvi & Berman, Oded, 1992. "The capacity expansion problem in the service industry with multiple resource constraints," Socio-Economic Planning Sciences, Elsevier, vol. 26(1), pages 1-14, January.
    3. Dudzinski, Krzysztof & Walukiewicz, Stanislaw, 1987. "Exact methods for the knapsack problem and its generalizations," European Journal of Operational Research, Elsevier, vol. 28(1), pages 3-21, January.
    4. Marshall L. Fisher, 1981. "The Lagrangian Relaxation Method for Solving Integer Programming Problems," Management Science, INFORMS, vol. 27(1), pages 1-18, January.
    5. Dimitris Paraskevopoulos & Elias Karakitsos & Berc Rustem, 1991. "Robust Capacity Planning Under Uncertainty," Management Science, INFORMS, vol. 37(7), pages 787-800, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. A. Marín & J. Salmerón, 2001. "A risk function for the stochastic modeling of electric capacity expansion," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(8), pages 662-683, December.
    2. Kai Huang & Shabbir Ahmed, 2009. "The Value of Multistage Stochastic Programming in Capacity Planning Under Uncertainty," Operations Research, INFORMS, vol. 57(4), pages 893-904, August.
    3. Van-Anh Truong & Robin O. Roundy, 2011. "Multidimensional Approximation Algorithms for Capacity-Expansion Problems," Operations Research, INFORMS, vol. 59(2), pages 313-327, April.
    4. Torres-Rincón, Samuel & Sánchez-Silva, Mauricio & Bastidas-Arteaga, Emilio, 2021. "A multistage stochastic program for the design and management of flexible infrastructure networks," Reliability Engineering and System Safety, Elsevier, vol. 210(C).
    5. Shabbir Ahmed & Nikolaos V. Sahinidis, 2003. "An Approximation Scheme for Stochastic Integer Programs Arising in Capacity Expansion," Operations Research, INFORMS, vol. 51(3), pages 461-471, June.
    6. Woonghee Tim Huh & Robin O. Roundy, 2005. "A continuous‐time strategic capacity planning model," Naval Research Logistics (NRL), John Wiley & Sons, vol. 52(4), pages 329-343, June.
    7. Suleyman Karabuk & S. David Wu, 2003. "Coordinating Strategic Capacity Planning in the Semiconductor Industry," Operations Research, INFORMS, vol. 51(6), pages 839-849, December.
    8. Kavinesh J. Singh & Andy B. Philpott & R. Kevin Wood, 2009. "Dantzig-Wolfe Decomposition for Solving Multistage Stochastic Capacity-Planning Problems," Operations Research, INFORMS, vol. 57(5), pages 1271-1286, October.
    9. Jikai Zou & Shabbir Ahmed & Xu Andy Sun, 2018. "Partially Adaptive Stochastic Optimization for Electric Power Generation Expansion Planning," INFORMS Journal on Computing, INFORMS, vol. 30(2), pages 388-401, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lorena, Luiz Antonio N. & Narciso, Marcelo G., 1996. "Relaxation heuristics for a generalized assignment problem," European Journal of Operational Research, Elsevier, vol. 91(3), pages 600-610, June.
    2. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    3. Pennings, Enrico & Natter, Martin, 2001. "Strategic diversification and capacity utilization," International Journal of Production Economics, Elsevier, vol. 72(3), pages 261-272, August.
    4. Driouchi, Tarik & Bennett, David & Simpson, Gary, 2010. "A path-dependent contingent-claims approach to capacity investments," European Journal of Operational Research, Elsevier, vol. 201(1), pages 319-323, February.
    5. Drexl, Andreas & Jørnsten, Kurt, 2007. "Pricing the multiple-choice nested knapsack problem," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 626, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    6. Narciso, Marcelo G. & Lorena, Luiz Antonio N., 1999. "Lagrangean/surrogate relaxation for generalized assignment problems," European Journal of Operational Research, Elsevier, vol. 114(1), pages 165-177, April.
    7. Shangyao Yan & Ching-Hui Tang, 2008. "An Integrated Framework for Intercity Bus Scheduling Under Stochastic Bus Travel Times," Transportation Science, INFORMS, vol. 42(3), pages 318-335, August.
    8. Eberly, Janice C. & Van Mieghem, Jan A., 1997. "Multi-factor Dynamic Investment under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(2), pages 345-387, August.
    9. Pisinger, David, 1995. "A minimal algorithm for the multiple-choice knapsack problem," European Journal of Operational Research, Elsevier, vol. 83(2), pages 394-410, June.
    10. Zhu, Xiaoyan & Wilhelm, Wilbert E., 2007. "Three-stage approaches for optimizing some variations of the resource constrained shortest-path sub-problem in a column generation context," European Journal of Operational Research, Elsevier, vol. 183(2), pages 564-577, December.
    11. Wolosewicz, Cathy & Dauzère-Pérès, Stéphane & Aggoune, Riad, 2015. "A Lagrangian heuristic for an integrated lot-sizing and fixed scheduling problem," European Journal of Operational Research, Elsevier, vol. 244(1), pages 3-12.
    12. M Diaby & A L Nsakanda, 2006. "Large-scale capacitated part-routing in the presence of process and routing flexibilities and setup costs," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(9), pages 1100-1112, September.
    13. Ogbe, Emmanuel & Li, Xiang, 2017. "A new cross decomposition method for stochastic mixed-integer linear programming," European Journal of Operational Research, Elsevier, vol. 256(2), pages 487-499.
    14. Mutsunori Yagiura & Toshihide Ibaraki & Fred Glover, 2004. "An Ejection Chain Approach for the Generalized Assignment Problem," INFORMS Journal on Computing, INFORMS, vol. 16(2), pages 133-151, May.
    15. Weijun Xie & Yanfeng Ouyang & Sze Chun Wong, 2016. "Reliable Location-Routing Design Under Probabilistic Facility Disruptions," Transportation Science, INFORMS, vol. 50(3), pages 1128-1138, August.
    16. Shangyao Yan & Chun-Ying Chen & Chuan-Che Wu, 2012. "Solution methods for the taxi pooling problem," Transportation, Springer, vol. 39(3), pages 723-748, May.
    17. Chou, Chang-Chi & Chiang, Wen-Chu & Chen, Albert Y., 2022. "Emergency medical response in mass casualty incidents considering the traffic congestions in proximity on-site and hospital delays," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    18. Qin, Ruwen & Nembhard, David A., 2012. "Demand modeling of stochastic product diffusion over the life cycle," International Journal of Production Economics, Elsevier, vol. 137(2), pages 201-210.
    19. Keliang Wang & Leonardo Lozano & Carlos Cardonha & David Bergman, 2023. "Optimizing over an Ensemble of Trained Neural Networks," INFORMS Journal on Computing, INFORMS, vol. 35(3), pages 652-674, May.
    20. Ibrahim Muter & Tevfik Aytekin, 2017. "Incorporating Aggregate Diversity in Recommender Systems Using Scalable Optimization Approaches," INFORMS Journal on Computing, INFORMS, vol. 29(3), pages 405-421, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:navres:v:41:y:1994:i:4:p:545-564. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.