Integrated production planning and risk hedging

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

1 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)89-106
Journal / PublicationFoundations and Trends in Technology, Information and Operations Management
Volume11
Issue number1-2
Online published21 Dec 2017
Publication statusPublished - 2017
Externally publishedYes

Abstract

We study production planning integrated with risk hedging. In addition to using a one-time production quantity decision, made at the beginning of a planning horizon, as a way to manage demand uncertainty, we illustrate how to construct and execute a hedging strategy throughout the horizon, as a better and more effective approach to mitigating the risks involved. Furthermore, whereas traditional production planning models focus on the expected net-profit as an objective function, we study two risk measures, variance and shortfall. In both cases, we characterize the efficient frontier, and demonstrate the improved risk-return profile over a production-only decision.

Research Area(s)

  • G20 Financial Services, G32 Financial Risk and Risk Management, M11 Production management, Operational risk management, Contingency planning, Commodity price risk, Supply chain disrutpions