Article: Capacity planning with demand uncertainty.

INTRODUCTION

Organizations typically make long-term cost commitments to acquire certain resources because it is more economical to do so than to acquire them on an as-needed basis.(1) Such capacity resources (e.g., machinery, buildings, support department staffing) typically account for 30% to 60% of the total costs in manufacturing organizations (Miller and Vollman [15]; Banker, Potter and Schroder [4]), and 70% to 80% of the total costs in service organizations. The magnitude of these capacity costs underscores the economic importance of the initial capacity planning decision, i.e., how much capacity to install for capacity resources.(2)

Uncertainty in ...

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