Dynamic Capacity Management with General Upgrading
This paper studies a capacity management problem with upgrading. A firm needs to procure multiple classes of capacities and then allocate the capacities to satisfy multiple classes of customers that arrive over time. A general upgrading rule is considered, i.e., unmet demand can be satisfied using multi-step upgrade. No replenishment is allowed and the firm has to make the allocation decisions without observing future demand. We first characterize the structure of the optimal allocation policy, which consists of parallel allocation and then sequential rationing. Specifically, the firm first uses capacity to satisfy the same-class demand as much as possible, then considers possible upgrading decisions in a sequential manner. We also propose a heuristic based on certainty equivalence control to solve the problem. Numerical analysis shows that the heuristic is fast and delivers close-to-optimal profit for the firm. Finally, we conduct extensive numerical studies to derive insights into the problem. It is found that under the proposed heuristic, the value of using sophisticated multi-step upgrading can be quite significant; however, using simple approximations for the initial capacity leads to negligible profit loss, which suggests that the firm's profit is not sensitive to the initial capacity decision if the optimal upgrading policy is used
Year of publication: |
2015
|
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Authors: | Yu, Yueshan |
Other Persons: | Chen, Xin (contributor) ; Zhang, Fuqiang (contributor) |
Publisher: |
[2015]: [S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (35 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 22, 2015 erstellt |
Other identifiers: | 10.2139/ssrn.2451159 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10013033380
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