Simultaneous Modeling of Location, Advertisement and Competition in Investment/capacity Planning with Risk Management

This paper proposes an investment/capacity planning model for projects that involves the production of final products that are sold directly to consumers. The model considers some aspects of the problem that have not been put together before, namely, the location, the advertisement costs, and the effect of the competition. We have used a microbrewery capacity planning problem. The problem is formulated as a typical capacity planning problem with expansions, but several different potential locations are considered. In addition, several markets, not necessarily the same as locations, are allowed. Sales in each potential market are connected to advertisement expenditures. Maximum market shares as well as sales to advertisement ratios are a function of each potential market. Finally, the model is crafted so that reinvestment is allowed only by using portions of proceeds and no new capital. Multiple locations are also allowed. The model output provides the expansions through the time horizon, the anticipated sales, and the advertising strategies and expenses. Some intriguing results will be discussed. For example, the capture of a portion of certain markets to later abandon it to pursue more profitable options. Finally, the model was made stochastic and options with less financial risk were identified.