Investment in Production Resource Flexibility: An Empirical Investigation of Methods for Planning Under Uncertainty
Naval Research Logistics, Vol. 50, 2003
25 Pages Posted: 28 Feb 2005
We examine several methods for evaluating resource acquisition decisions under uncertainty. Traditional methods may underestimate equipment beneﬁt when part of this beneﬁt comes from decision ﬂexibility. We develop a new, practical method for resource planning under uncertainty, and show that this approach is more accurate than several commonly used methods. We successfully applied our approach to an investment problem faced by a major ﬁrm in the aviation information industry. Our recommendations were accepted and resulted in estimated annual savings in excess of $1 million (US).
Keywords: manufacturing ﬂexibility, stochastic programming, sampling6
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