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1Institute of Industrial Engineering & ManagementNational Yunlin University of Science & TechnologyJen-Hao LoAdvisor: Chwen-Tzeng Su, Ph.D.Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

OutlineIntroductionMotivation and backgroundResearch objectiveResearch AssumeOrganization of the dissertation Literature ReviewResearch MethodExpected results2Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Introduction3Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

(Unit of billion)(Unit of piece) Motivation and background4Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Motivation and background

5Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Motivation and backgroundLack of space in WarehousingTake the space demandEvaluate expansion or outsourcing decisionsEstablish investment evaluation Expansion or Outsourcing DecisionsARIMA ForecastCombine with Real OptionsSystem of Investment Evaluation Decisions6Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research objectiveUnderstand expansion or outsourcing decisions cost

Control uncertain factors by real options

Provide investment evaluation for manager

Establish system of investment evaluation decisions

7Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research AssumeSales are fixed annual gain.The space cant allocate.Calculate AS/RS cost by unit load AS/RS.The outsourcing cost can be obtain through suppliers. The transportation cost can be compute by suppliers.

8Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Organization of the dissertation

9Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Literature Review10Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Literature ReviewCapacity Planning

ARIMA Forecast

Real OptionKarabuk et al.(2003) Capacity AllocationCapacity ExpansionBottleneck machineAncillary equipmentBuild new plant (Fleischmann et al. ,2006)11Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Literature ReviewAuthorYearResearch and resultSuryani2011Capacity planning for passenger demand. Find out expansion timing and impact of other factors include service standards, population number, waiting time, air freight.Fleischmann et al.2006Definite capacity expansion if plan is a long-term investment plan . Investment plans need to consider the future demand , budget and land space for decisionKarabuk et al2003The resources available to meet future demand, need to decide the implementation of the expansion timing and number of the expansion of production capacity or outsourcing to suppliers.Freidenfelds1981Defined capacity expansion. The best expansion decisions should consider demand for products, expansion of budget and price.12Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation CenterLiterature ReviewCapacity Planning

ARIMA Forecast

Real OptionBox and Jenkins (1976) Auto-Regressive (p)Moving Average(q)13

Literature ReviewAuthorYearResearch and resultLoganathan & Ibrahim2010Use ARIMA model forecast for travel demand, the best model of the travel demand forecast for the ARIMA (1,0,1), and this model combined SARIMA, predict Malaysia in 2009 Q1 ~ Q4Quarter demand2007Use SARIMA model analysis of each month from 2000 to 2006 data estimated the number of vessels . It has found SARIMA better explain and predict the force.2007Set of three models: regression model, SARIMA combination of the two, comparing model predictive capability, use predictive power :MAPE and Theil inequality to determine.Makridakis 1998Find out five steps to construct the ARIMA model, the other can be used in the test of the predictive power of the mean absolute percentage error method as the predicted results of the judgment standard.14Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation CenterLiterature ReviewCapacity Planning

ARIMA Forecast

Real OptionCopeland and Antikarov (2001)15

Literature ReviewAuthorYearResearch and resultLee et al.2011Set up fuzzy real option assessment of the investment decision-making, and effective assessment of its results than the traditional NPV and real options analysis in RFID.OBrien et al.2003Explore related deferred investment in, the results proved highly uncertain, and give up the execution of the investment may be obtained under the deferred option is exercised, the company profitsTrigeorgis1999Classified seven common applications of real options, delay option, phased investment option, correction options, to give up the option, conversion option, growth option with multiple options.Black and Scholes1973Find out five steps ARIMA model, the other can be used in the test of the predictive power of the mean absolute percentage error method as the predicted results of the judgment standard16Research Method17Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods

AS/RS CostTradition Storehouse CostOutsourcing Cost18Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods-IntroductionThe company logistics center was established based on an annual turnover of 50 billion to build in 2004,but it has exceeded 10 billion and lack of storage space in 2011.Sales forecast for space demand19Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation CenterResearch Methods-ForecastProducts may have seasonal factor, combine ARIMA model with seasonal factor is SARIMA.SARIMA(p, d, q) (P,D,Q)s

Auto-Regressive (p)Moving Average(q)Seasonal AR(P)Seasonal MA(Q)20

Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation CenterResearch Methods-ForecastPredictive ability of discrimination21

Research Methods-ForecastSales transform into space demand(2004)

22Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods-Cost model23Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods-Cost model24Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods-Cost model25Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods- Real Option AssessExpansion CostOutsourcing CostDiscounted Cash Flow (DCF)Real Option AssessUncertainty factors26Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation CenterCopeland and Antikarov(2001)Real option implement steps

Research Methods- Real Option Assess27

Real option basic parametersValue of the Underlying Risky Asset Investment valueExercise PriceExpansion & outsourcing costTime to Expiration of the Option Every yearThe Standard Deviation of the Value of Underlying Risky Asset Investment variability factors The Risk-Free Rate of Interest over the Life of the Option U.S. treasury bond interest rate risk-free interest rate(4.5%)Paid Out by the Underlying Asset No dividendsResearch Methods- Real Option Assess28Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Research Methods- Real Option Assess29Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation CenterModeling Uncertainty Factors Trigeorgis 1991Log-Transformed Binomial MethodDetermine parametersBinomial treeDetermine final valueReverse operation process

Research Methods- Real Option Assess30

Uncertainty Expansion DecisionUncertainty Outsourcing DecisionBest Investment DecisionsResearch Methods- Real Option Assess31Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

Expectable ResultCombination of academic research and industry.Modeling expansion & outsourcing cost.Establish the best time point of expansion.Choose the optimal invest budget, minimal cost.Consider uncertainty factors for reduce the risk of the investment plan.Establish the system of expansion & outsourcing decision.32Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

THE ENDThanks for listen & offering advice!33Expansion or Outsourcing Decisions with Demand for Warehouse Space A Case Study of Warehousing and Transportation Center

SARIMA

Research Questions

Literature Review

Forecast demand

Design cost model

Real option decision evaluation

Case study

Conclusion & Discussion

ARIMA

Capacity Planning

Real Option

Expansion cost

Outsourcing cost

LTBM

Real optione

Method Process

Company Introduction

Space Forecast

Design Cost Model

Real Option Assess

Compute NPV

Modeling Uncertainty Factors

Assess Real Option

Assess Decision Value