OR Practice—A Scenario Approach to Capacity Planning

TLDR

Production capacity is a critical strategic variable for major automobile companies, with decisions on capacity level, facility flexibility, and location extensively discussed in business literature. The authors present a model developed for General Motors to guide capacity decisions for four auto lines, offering a general‑purpose framework applicable to diverse risk‑informed decisions. The model combines scenario planning, integer programming, and risk analysis, implemented in Lotus 1‑2‑3 and illustrated with confidential real‑world data.

Abstract

Production capacity has always been one of the most important strategic variables for the major automobile companies. Decisions by individual companies concerning the overall level of capacity, the type of facility (e.g., the level of flexibility), and the location of that capacity (e.g., in the United States or abroad) are discussed in great detail in the popular business press. In this paper, we describe a model developed for General Motors to aid in making decisions about capacity for four of their auto lines. The model incorporates elements of scenario planning, integer programming, and risk analysis. All the input and output is done using Lotus 1-2-3. Although the presentation is motivated by the particular application in the auto industry, the model represents a general purpose approach that is applicable to a wide variety of decisions under risk. An example in this paper uses actual data, appropriately transformed to ensure confidentiality.