Journal of the Korean Operations Research and Management Science Society (한국경영과학회지)

The Korean Operations Research and Management Science Society (한국경영과학회)
권호 표지
DOI QR코드

DOI QR Code

The Impact of Capacity Flexibility in a Rental Operation on the Financial Performance

렌탈 운영에서 용량 유연성 확보가 기업의 수익성에 미치는 영향

  • Kim, Eungab (College of Business Administration, Ewha Womans University)
  • 김은갑 (이화여자대학교 경영대학)
  • Received : 2014.08.25
  • Accepted : 2014.11.04
  • Published : 2014.11.30
Download PDF
⟨ Previous Next ⟩

Abstract

We present a new framework for rental capacity management in which rental capacity is dynamically managed by means of temporary inventory addition/return. While serving customers with its own (native) capacity, the rental firm rents additional rental capacity from an upper echelon rental company so that it can avoid lost sales which may occur when stock is not sufficient, and returns it when stock becomes sufficiently large enough to cope with demands. Formulating the model as a Markov decision process, we investigate a flexible capacity addition/return policy that maximizes the firm's profit with respect to system costs. Numerical study indicates that rental operation with capacity addition/return can be economically favorable over rental operation without capacity expansion/return and can contribute the reduction in the size of native rental capacity.

Keywords

References

  1. Angelus, A. and E.L. Porteus, "Simultaneous capacity and production management of shortlife-cycle, produce-to-stock goods under stochastic demand," Management Science, Vol. 48(2002), pp.399-413. https://doi.org/10.1287/mnsc.48.3.399.7726
  2. Bean, J.C. and R.L. Smith, "Optimal capacity expansion over an infinite horizon," Management Science, Vol.31(1985), pp.1523-1532. https://doi.org/10.1287/mnsc.31.12.1523
  3. Bertsekas, D.P., Dynamic Programming : Deterministic and Stochastic Models, Prentalice-Hall, Englewood Cliffs, 1987.
  4. Chand, S., T. McClurg, and J. Ward, "A model for parallel machine replacement with capacity expansion," European Journal of Operational Research, Vol.121(2000), pp.519-531. https://doi.org/10.1016/S0377-2217(99)00052-1
  5. Chen, F. and Y. Zheng, "Evaluating echelon stock (R, nQ) policies in serial production/inventory systems with stochastic demand," Management Science, Vol.40(1994), pp.1262-1275. https://doi.org/10.1287/mnsc.40.10.1262
  6. Constantinides, G.M., "Stochastic cash management with fixed and proportional transaction costs," Management Science, Vol.22 (1976), pp.1320-1331. https://doi.org/10.1287/mnsc.22.12.1320
  7. Fleischmann, M., R. Kuik, and R. Dekker, "Controlling inventories with stochastic item returns : A basic model," European Journal of Operational Research, Vol.138(2002), pp. 63-75. https://doi.org/10.1016/S0377-2217(01)00100-X
  8. Fleischmann, M. and R. Kuik, "On optimal inventory control with independent stochastic item returns," European Journal of Operational Research, Vol.151(2003), pp.25-37. https://doi.org/10.1016/S0377-2217(02)00592-1
  9. Kim, E. and J. Byun, "Rental resource management model with capacity expansion and return," Journal of the Korean Operations Research and Management Science Society, Vol.31(2006), pp.79-95.
  10. Lippman, S., "Applying a new device in the optimization of Exponential queueing systems," Operations Research, Vol.23(1975), pp.687-710. https://doi.org/10.1287/opre.23.4.687
  11. Miller, M.H. and D. Orr, "A Model of the Demand for Money by Firms," Quarterly Journal of Economics, Vol.80(1966), pp.413-435. https://doi.org/10.2307/1880728
  12. Premachandra, I.M., "A diffusion approximation model for managing cash in firms : An alternative approach to the Miller-Orr model," European Journal of Operational Research, Vol.157(2004), pp.218-226. https://doi.org/10.1016/S0377-2217(03)00109-7
  13. Rajagopalan, S. and A. Soteriou, "Capacity acquisition and disposal with discrete facility sizes," Management Science, Vol.40(1994), pp.903-917. https://doi.org/10.1287/mnsc.40.7.903
  14. Rajagopalan, S. and J.M. Swaminathan, "A coordinated production planning model with capacity expansion and inventory management," Management Science, Vol.47(2001), pp.1562-1580. https://doi.org/10.1287/mnsc.47.11.1562.10254
  15. Rao, M.R., "Optimal capacity expansion with inventory," Operations Research, Vol.4(1976), pp.291-300.
  16. Rocklin, S.M., A. Kashper, and G.C. Varvaloucas, "Capacity expansion/contraction of a facility with demand augmentation dynamics," Operations Research, Vol.32(1984), pp.133-147. https://doi.org/10.1287/opre.32.1.133
  17. Ryan, S.M., "Capacity expansion for random exponential demand growth with lead times," Management Science, Vol.50(2004), pp.740-748. https://doi.org/10.1287/mnsc.1030.0187
  18. So, K. and C.S. Tang, "On managing operating capacity to reduce congestion in service systems," European Journal of Operational Research, Vol.92(1996), pp.83-98. https://doi.org/10.1016/0377-2217(95)00153-0
  19. Yuan, X. and K. Cheung, "Modeling returns of merchandise in an inventory system," OR Spektrum, Vol.20(1998), pp.147-154. https://doi.org/10.1007/BF01539763