Journal Articles

Simultaneous Production of Market-specific and Global Products: A Two-stage Stochastic Program with Additional Demand after Recourse

2003, Naval Research Logistics

K. Cattani, G. Ferrer, W. Gilland

Abstract

This paper analyzes the simultaneous production of market-specific products tailored
to the needs of individual regions and a global product that could be sold in many regions.
We assume that the global product costs more to manufacture, but allows the decision concerning
the allocation of products to regions to be delayed until after the manufacturing process has been
completed. We further assume that there is additional demand after the region allocation but prior
to delivery, extending the two-stage stochastic program with recourse to include additional
stochastic demand after the recourse. This scenario arises, for example, when there is additional
uncertainty during a delivery delay which might occur with transoceanic shipments. We develop
conditions for optimality assuming a single build-allocate-deliver cycle and stochastic demand
during both the build and deliver periods. The optimal policy calls for the simultaneous
production of market-specific and global products, even when the global product is substantially
more costly than the market-specific product. In addition, we develop bounds on the performance
of the optimal policy for the multicycle problem.

Citation

Cattani, K., G. Ferrer, and W. Gilland (2003), "Simultaneous Production of Market-specific and Global Products: A Two-stage Stochastic Program with Additional Demand after Recourse", Naval Research Logistics, Vol. 50, No. 5.