LFM SDM Web Seminar

Capacity Planning in a Supply Chain with Option Contracts

By Professor Steve Graves
MIT Sloan School of Management

Abstract:
A key challenge for any new product is to determine the right amount and type of capacity investments across the supply chain. In this research we consider these capacity decisions for a multi-product, multi-process, multi-resource supply chain. Each product can require process capabilities, such as assembly or testing capacity, as well as supply capabilities, such as the capacity to supply a key component or sub-system. Each resource provides capacity for one or more these processes or supplies; for instance, a resource might be a qualified supplier or contract manufacturer, or might correspond to an internal manufacturing facility. We assume that the firm can secure or reserve capacity for each resource by means a various types of option contracts. We develop a framework to determine and evaluate the capacity investments for this context, in the presence of demand uncertainty. We will illustrate the possible application of the research with a couple of simple examples.

About the Speaker:
Steve Graves received his Ph.D. in Operations Research from the University of Rochester. He is interested in the development and application of operations research models and methods to solve problems in manufacturing systems, supply chains, and service operations. Current projects include strategic inventory positioning in a supply chain and optimizing the design and configuration of an order fulfillment center.

Dr. Graves was the Chair of the Faculty at MIT from 2001-2003. He has also served as Deputy Dean of MIT Sloan School of Management and Co-director of the MIT Leaders for Manufacturing program. He is a faculty affiliate of the MIT Operations Research Center. Dr. Graves has consulted extensively to industry and served in editorial capacities on several professional and academic journals.