A Strategic Manufacturing Capacity and Supply Chain Network Design Contingency Planning Approach

Abstract

We develop a contingency planning methodology for how a firm would build a global supply chain network with reserve manufacturing capacity which can be strategically deployed by the firm in the event actual demand exceeds forecast. The contingency planning approach is comprised of: (1) a strategic network design model for finding the profit maximizing plant locations, manufacturing capacity and inventory investments, and production level and product distribution; and (2) a scenario planning and risk assessment scheme to analyze the costs and benefits of alternative levels of manufacturing capacity and inventory investments. We develop an efficient heuristic procedure to solve the model. We show numerically how a firm would use our approach to explore and weigh the potential upside benefits and downside risks of alternative strategies.