ABSTRACT
This chapter addresses the plant building decision and assignment of orders to plants in the presence of uncertain status of capacity utilization and propose methods to operationally hedge against the uncertainty. The uncertainty inherent in forecasting unanticipated status of capacity utilization makes it unrealistic and unreliable to make the aforementioned decisions only on the strength of deterministic models. Production capacity planning is the process of determining how much production capacity to acquire and how to plan its utilization to meet fluctuant market demands which is typically arisen in manufacturing industry. Robust optimization methodology has emerged as a preeminent tool in immunizing uncertain mathematical optimization. The chapter employs the robust optimization approach to modeling uncertain capacity utilization status as a polyhedral uncertainty set in capacity planning. When the decision makers are risk averse, the deployment of robust optimization is appropriate. The actual capacity utilization, without exact knowledge of distribution, must lie within the polyhedral uncertainty set.
