Optimal production decision for a risk‐averse manufacturer faced with random yield and stochastic demand

2017 ◽  
Vol 27 (3) ◽  
pp. 1622-1637 ◽  
Author(s):  
Shiming Deng ◽  
Zhong Zheng
Keyword(s):  
Stochastic Demand ◽  
Risk Averse ◽  
Random Yield ◽  
Optimal Production ◽  
Production Decision

scholarly journals Optimal MTS and MTO Hybrid Production System for a Single Product Under the Cap-And-Trade Environment

2020 ◽  
Vol 12 (6) ◽  
pp. 2426
Author(s):  
Shouyao Xiong ◽  
Yuanyuan Feng ◽  
Kai Huang
Keyword(s):  
Production System ◽  
Optimal Solution ◽  
Cap And Trade ◽  
Single Product ◽  
Optimal Production ◽  
Production Mode ◽  
Hybrid Production ◽  
Allowance Trading ◽  
Production Strategy ◽  
Production Decision

This paper studies the optimal production planning in a hybrid Make-To-Stock (MTS) and Make-To-Order (MTO) production system for a single product under the cap-and-trade environment. The manufacturer aims to minimize the total cost in production, inventory and emissions allowances trading. The decisions include the selection of production mode (pure MTS, pure MTO or hybrid MTS/MTO), the inventory and emissions trading quantity. We derive the optimal solution analytically. We show that the cost of optimal MTO/MTS hybrid production strategy is remarkably less than that of either pure MTO or pure MTS production strategy alone. Compared with the no initial carbon quota and trading environment, there are significant differences in the optimal production decisions under trading environment. When the emissions cost is a source of costs, the manufacturer has to face more costs pressure even if there is no emissions allowance trading. In particular, the results show that the initial emissions allowance determines the optimal production decision and emissions allowance trading decision in cases where the difference between the inventory cost for per unit product and the delayed delivery cost for per unit order is between the minimum and the maximum emissions cost and has no effect on production mode and emissions allowances trading decision in other cases. These conclusions will provide optimal production decision and carbon trading decision for the manufacture under a cap-and-trade environment.

Lot Sizing and Dynamic Pricing with Random Yield and Different Qualities

2012 ◽  
Vol 4 (3) ◽  
pp. 91-101
Author(s):  
Guo Li ◽  
Tao Gao ◽  
Zhaohua Wang ◽  
Shihua Ma
Keyword(s):  
Supply Chain ◽  
Dynamic Pricing ◽  
Lot Sizing ◽  
Random Component ◽  
Random Yield ◽  
Type B ◽  
Numerical Illustration ◽  
Optimal Production ◽  
Pricing Errors ◽  
Centralized System

The literature under random component yield has focused on coordination of supply chain at the determined price, where decision maker chooses its optimal production quantities. The authors consider a centralized system when the price is not determined under both random yield and demand. Type A with perfect quality and type B with imperfect quality are produced due to the random yield. They prove the unique concavity of expected profit in centralized system at determined price. Then dynamic pricing is considered and algorithm is put forward for dynamic pricing. Errors can be sufficiently small as long as some parameters can be set suitably. Apart from lot sizing and dynamic pricing, the authors also provide qualitative insights based on numerical illustration of centralized and decentralized solutions.

Risk-averse optimization of disaster relief facility location and vehicle routing under stochastic demand

2020 ◽  
Vol 141 ◽  
pp. 102015 ◽  
Author(s):  
Shaopeng Zhong ◽  
Rong Cheng ◽  
Yu Jiang ◽  
Zhong Wang ◽  
Allan Larsen ◽  
...  
Keyword(s):  
Facility Location ◽  
Vehicle Routing ◽  
Disaster Relief ◽  
Stochastic Demand ◽  
Risk Averse

scholarly journals Production Decision Analysis Under Exchange Rate Demand, And Carbon Prices Uncertainties

2021 ◽  
Author(s):  
Satheeskaran Prasad
Keyword(s):  
Brownian Motion ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Options ◽  
Carbon Emissions ◽  
Geometric Brownian Motion ◽  
Risk Averse ◽  
Financial Options ◽  
Production Decision ◽  
Financial Losses

This thesis presents an optimal production decision analysis for a multinational firm under exchange rate, carbon allowance prices, and demand uncertainties. Firms having production and sales in two different countries experience both demand and exchange rate uncertainties. When exchange rates move unfavorably, multinational firms face financial losses because of falling profits. Demand uncertainties may result in underage cost when production quantities are less than the demand, or overage cost when production quantities are more than the demand. Additionally, recent environmental regulations on emissions of green house gases, particularly carbon dioxide emissions, also pose risk on firms’s profitability. It is thus important for a risk-averse manager to decide how to mitigate these uncertainties to protect the firm’s financial losses. In order to address these issues, mathematical models that capture firm’s production allocation problem under different scenarios of exchange rate, carbon emissions, and demand uncertainties have been developed. The risk attitude of the firm manager is assumed to be risk averse and is modeled by a mean-variance (MV) utility function. In order to hedge downside risk of exchange rates and upside risk of carbon allowance prices, the firm takes long positions in currency put and carbon call options, respectively. The objective is to maximize the MV function of the firm subject to various capacity and demand constraints and determine the optimal number of currency put and carbon call options. The firm possesses real options capability in the form of capacity flexibility represented by a vector of discrete capacity levels to meet uncertainties of demand. Demand uncertainties are assumed to follow regime-switching behaviors – considering both onestate and two-state probability distributions. The stochastic behavior of exchange rate is modeled by a geometric Brownian motion and its limiting case as a random walk. Functioning under a cap-and-trade emission trading scheme, the firm is obliged to buy carbon allowances for its carbon emissions. Carbon allowance prices are modeled as both geometric Brownian motion and geometric Brownian motion with jump processes. Results demonstrate that integration of real options and financial options increases the utility of the firm, while financial options reduce the variance of the profit.

scholarly journals Production Decision Analysis Under Exchange Rate Demand, And Carbon Prices Uncertainties

2021 ◽  
Author(s):  
Satheeskaran Prasad
Keyword(s):  
Brownian Motion ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Options ◽  
Carbon Emissions ◽  
Geometric Brownian Motion ◽  
Risk Averse ◽  
Financial Options ◽  
Production Decision ◽  
Financial Losses

This thesis presents an optimal production decision analysis for a multinational firm under exchange rate, carbon allowance prices, and demand uncertainties. Firms having production and sales in two different countries experience both demand and exchange rate uncertainties. When exchange rates move unfavorably, multinational firms face financial losses because of falling profits. Demand uncertainties may result in underage cost when production quantities are less than the demand, or overage cost when production quantities are more than the demand. Additionally, recent environmental regulations on emissions of green house gases, particularly carbon dioxide emissions, also pose risk on firms’s profitability. It is thus important for a risk-averse manager to decide how to mitigate these uncertainties to protect the firm’s financial losses. In order to address these issues, mathematical models that capture firm’s production allocation problem under different scenarios of exchange rate, carbon emissions, and demand uncertainties have been developed. The risk attitude of the firm manager is assumed to be risk averse and is modeled by a mean-variance (MV) utility function. In order to hedge downside risk of exchange rates and upside risk of carbon allowance prices, the firm takes long positions in currency put and carbon call options, respectively. The objective is to maximize the MV function of the firm subject to various capacity and demand constraints and determine the optimal number of currency put and carbon call options. The firm possesses real options capability in the form of capacity flexibility represented by a vector of discrete capacity levels to meet uncertainties of demand. Demand uncertainties are assumed to follow regime-switching behaviors – considering both onestate and two-state probability distributions. The stochastic behavior of exchange rate is modeled by a geometric Brownian motion and its limiting case as a random walk. Functioning under a cap-and-trade emission trading scheme, the firm is obliged to buy carbon allowances for its carbon emissions. Carbon allowance prices are modeled as both geometric Brownian motion and geometric Brownian motion with jump processes. Results demonstrate that integration of real options and financial options increases the utility of the firm, while financial options reduce the variance of the profit.

Optimal production decision of new energy vehicle and traditional fuel vehicle

2021 ◽  
pp. 1-9
Author(s):  
Jiang Jiali ◽  
Lin Yuanyuan ◽  
Zhang Zhenyang ◽  
Wang Jun
Keyword(s):  
Decision Problem ◽  
Downward Trend ◽  
Optimal Production ◽  
Pricing Decision ◽  
New Energy ◽  
Vehicle Production ◽  
New Energy Vehicle ◽  
Vehicle Market ◽  
Production Decision ◽  
New Energy Vehicles

With the reduction of government subsidies for new energy vehicle, it has become an important decision problem for traditional vehicle enterprises with new energy vehicle production qualification to decide how much proportion of new energy vehicles should be produced. By maximizing the utility of the vehicle enterprise, this study analyses the influence of enterprise’s production decision and consumer’s preference payment premium for the performance of new energy vehicle on optimal mixed production and pricing decision after the subsidies withdraw from the new energy vehicle market. The Results show that: (1) consumer’s payment premium increases the proportion of new energy vehicles produced by automobile enterprise. The enterprise only produces traditional fuel vehicles instead of new energy vehicles, when the premium is less than a certain level; and when the payment premium is higher than a certain threshold, the enterprise merely produces new energy vehicles instead of traditional ones. (2) As the rise of consumer’s payment premium, the amount of people who consume vehicles show a downward trend, and finally only 1/2 of consumers will remain to purchase automobiles. (3) There shows a U-shaped relationship between the optimal profit of vehicle enterprise and consumer payment premium that the profit of vehicle enterprise will decline first and then rise with the increase of consumer payment premium.

scholarly journals Optimal Uncertainty Decision of Innovation Products Output Based on Return Collection

2016 ◽  
Vol 2016 ◽  
pp. 1-9
Author(s):  
Yi Su ◽  
Wei Sun ◽  
Zhouzhou Lin
Keyword(s):  
Production Cost ◽  
Product Returns ◽  
Optimal Production ◽  
Innovative Products ◽  
New Challenges ◽  
Decision Making Model ◽  
Purchase Quantity ◽  
Analytical Expressions ◽  
Production Decision ◽  
Structural Innovation

As the length of time between product renewals decreases, the enterprises that make innovative products face new challenges. The production cost structure of innovative products can be changed by collecting product returns, which can be economically valuable for enterprises. Enterprises face both production and demand randomness; hence, it is important to improve the traditional optimal production decision-making model that considers the randomness of demand only. This paper divides innovative products into structural innovation products and improved innovation products. The paper studies the optimal single-period production decision between reused parts and conventional new parts in complementary and substitute relationships. It further gives the analytical expressions for satisfying the optimal production and provides some numerical examples. The research results indicate that when producing innovative products, whether based on structural or improved innovation, with the variance of the quantity of the recycled parts increasing, the optimal purchase quantity of the conventional parts will increase but the expected profits for the innovative products will decrease. With integrated substitution and complementation based on improved innovation, enhancing the fluctuation in the number of recycled parts has a greater impact on the optimal purchase quantity of the substitute conventional parts than that of the complementary parts.

SUPPLY CHAIN COORDINATION WITH UNCERTAINTY IN TWO-ECHELON YIELDS

2013 ◽  
Vol 30 (01) ◽  
pp. 1250044 ◽  
Author(s):  
HONGJUN PENG ◽  
MEIHUA ZHOU ◽  
LING QIAN
Keyword(s):  
Supply Chain ◽  
Risk Sharing ◽  
Supply Chain Coordination ◽  
Revenue Sharing ◽  
Optimal Order ◽  
Optimal Production ◽  
Numerical Examples ◽  
Advantages And Disadvantages ◽  
Profit Value ◽  
Production Decision

This paper researches the coordination models in the supply chain where there are uncertain two-echelon yields and random demand. We analyzed three contracts of revenue sharing (RS), overproduction risk sharing (OS), and combination of RS and OS (RO), and contrasted them with uncoordinated model. We studied the optimal order decision for downstream manufacturer and the optimal production decision for upstream manufacturer. Numerical examples were presented to illustrate the results. The study showed that the RS contract and OS sharing contract both have their advantages and disadvantages and the RO contract could benefit the whole supply chain best. We found out that the OS contract gives the upstream manufacturer incentive to produce more so as to maximize the profit value, but the upstream manufacturer may receive less as the price of overproduced part increases. We also found out that under most scenarios, the supply chain benefits from the yields and demand risks reduction and generates a higher profit. But sometimes in the OS contract the downstream manufacturer profit can increase as yields randomness increases. And, in the uncoordinated case and OS contract, the upstream manufacturer profit can increase as demand randomness increases.

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