Journal
INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS
Volume 131, Issue 2, Pages 535-544Publisher
ELSEVIER
DOI: 10.1016/j.ijpe.2011.01.022
Keywords
Game theory; Capacity optimization; Competition; Lot-sizing; Approximation; Equilibrium
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Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot-sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies of scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions. Crown Copyright (C) 2011 Published by Elsevier B.V. All rights reserved.
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