Capacity expansion and cost efficiency improvement in the warehouse problem |
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| Authors: | Majid Al‐Gwaiz Xiuli Chao H. Edwin Romeijn |
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| Affiliation: | 1. Process & Control Systems Department, Saudi Aramco, Saudi Arabia;2. Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan;3. H. Milton Stewart School of Industrial & Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia |
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| Abstract: | The warehouse problem with deterministic production cost, selling prices, and demand was introduced in the 1950s and there is a renewed interest recently due to its applications in energy storage and arbitrage. In this paper, we consider two extensions of the warehouse problem and develop efficient computational algorithms for finding their optimal solutions. First, we consider a model where the firm can invest in capacity expansion projects for the warehouse while simultaneously making production and sales decisions in each period. We show that this problem can be solved with a computational complexity that is linear in the product of the length of the planning horizon and the number of capacity expansion projects. We then consider a problem in which the firm can invest to improve production cost efficiency while simultaneously making production and sales decisions in each period. The resulting optimization problem is non‐convex with integer decision variables. We show that, under some mild conditions on the cost data, the problem can be solved in linear computational time. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 63: 367–373, 2016 |
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| Keywords: | warehouse problem capacity expansion cost efficiency improvement project selection production planning optimal investment |
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