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Simultaneous production of market‐specific and global products: A two‐stage stochastic program with additional demand after recourse

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  • Kyle Cattani
  • Geraldo Ferrer
  • Wendell Gilland

Abstract

This paper analyzes the simultaneous production of market‐specific products tailored to the needs of individual regions and a global product that could be sold in many regions. We assume that the global product costs more to manufacture, but allows the decision concerning the allocation of products to regions to be delayed until after the manufacturing process has been completed. We further assume that there is additional demand after the region allocation but prior to delivery, extending the two‐stage stochastic program with recourse to include additional stochastic demand after the recourse. This scenario arises, for example, when there is additional uncertainty during a delivery delay which might occur with transoceanic shipments. We develop conditions for optimality assuming a single build‐allocate‐deliver cycle and stochastic demand during both the build and deliver periods. The optimal policy calls for the simultaneous production of market‐specific and global products, even when the global product is substantially more costly than the market‐specific product. In addition, we develop bounds on the performance of the optimal policy for the multicycle problem. © 2003 Wiley Periodicals, Inc. Naval Research Logistics 50: 438–461, 2003

Suggested Citation

  • Kyle Cattani & Geraldo Ferrer & Wendell Gilland, 2003. "Simultaneous production of market‐specific and global products: A two‐stage stochastic program with additional demand after recourse," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(5), pages 438-461, August.
    • Handle: RePEc:wly:navres:v:50:y:2003:i:5:p:438-461
    DOI: 10.1002/nav.10070
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    References listed on IDEAS

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