| Abstract: | An important issue in planning capacity expansion under uncertain demand is the effect of lead time on the timing of plant construction. Our model helps decide whether (1) plant construction is initiated after a certain deficit is accumulated, or (2) plant construction is initiated ahead of demand when a certain capacity surplus is reached. In addition to our analytical results, we present computational results to show that it is economically attractive to delay plant construction beyond the time when existing excess capacity becomes fully absorbed, with relatively short construction lead time. |
