Capacity expansion for a loss system with exponential demand growth

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2003-01-01
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Simampo, Alexander
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Ryan, Sarah
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Industrial and Manufacturing Systems Engineering
The Department of Industrial and Manufacturing Systems Engineering teaches the design, analysis, and improvement of the systems and processes in manufacturing, consulting, and service industries by application of the principles of engineering. The Department of General Engineering was formed in 1929. In 1956 its name changed to Department of Industrial Engineering. In 1989 its name changed to the Department of Industrial and Manufacturing Systems Engineering.
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We study a loss system to forecast the demand for capacity based on the forecast demand for service and a specified service level. A little-used property of the Erlang loss formula allows the linear transformation of demand for service into demand for capacity. Next, given the forecast demand for capacity, we approximate a long-run optimal capacity expansion policy by optimizing over successively longer finite time horizons. Analytical formulas together with regression analysis show the significance of the number of potential customers, frequency and duration of their requests for service, and the specified service level on the demand for capacity. Numerical sensitivity analysis exposes the effects of cost parameters, the demand growth rate and the required rate of return on the optimal time intervals between expansions.

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This is a manuscript of an article that is published as, Simampo, A. and S. M. Ryan, "Capacity Expansion for a Loss System with Exponential Demand Growth," Computers and Operations Research, 30, 1525-1537 (2003). Available at: https://doi.org/10.1016/S0305-0548(02)00081-3. Posted with permission.

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Wed Jan 01 00:00:00 UTC 2003
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