Capacity Reservation for Capital-Intensive Technologies: An Options Approach

By Carlos Daganzo and Stefan Spinler

Arguably the central problem in operations research and management science (OR/MS) addressed by e-Business is better coordination of supply and de- mand, including price discovery and reduction of transactions costs of buyer- seller interactions. In capital-intensive industries like chemicals and steel, the out-of-pocket costs of excess capacity and the opportunity costs of underuti- lized capacity have been important factors driving the growth of exchanges for improving demand and supply coordination through e-Business platforms. Stefan Spinler addresses in his dissertation one of the most interesting aspects of this evolution for OR/MS, the parallel development of long-term and short-term markets for capacity and output, accompanied by a range of exotic options and forwards as the basic mechanisms supporting transac- tions. This is a fascinating research topic because it builds on the powerful framework of real options, while connecting directly to key operations deci- sions (capacity planning, staffing, maintenance, and so forth) of the plants and technologies whose output is the focus of contracts. From the perspec- tive of practice, the use of these contracting mechanisms, as facilitated by a new breed of B2B exchanges, represents an opportunity for further improving supply chain performance and capital asset productivity.

• Format: Paperback
• Language: English
• ISBN: 3540002871
• ISBN13: 9783540002871
• Release Date: January 2003
• Publisher: Springer
• Length: 143 Pages
• Weight: 0.55 lbs.
• Dimensions: 0.4" x 6.2" x 9.3"