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Motivated by a problem faced by a large manufacturer of a consumer product, we explore the interaction between production planning and capacity acquisition decisions in environments with demand growth. We study a firm producing multiple items in a multiperiod environment where demand for items is known but varies over time with a long-term growth and possible short-term fluctuations. The production equipment is characterized by significant changeover time between the production of different items. While demand growth is gradual, capacity additions are discrete. Therefore, periods immediately following a machine purchase are characterized by excess machine capacity. We develop a mathematical programming model and an effective solution approach to determine the optimal capacity acquisition, production and inventory decisions over time. Through a computational study, we show the effectiveness of the solution approach in terms of solution quality and investigate the impact of product variety, cost of capital, and other important parameters on the capacity and inventory decisions. The computational results bring out some key insights--increasing product variety may not result in excessive inventory and even a substantial increase in set-up times or holding costs may not increase the total cost over the horizon in a significant manner due to the ability to acquire additional capacity. We also provide solutions and insights to the real problem that motivated this work., 1. Introduction This paper was motivated by a problem faced by a large manufacturing firm producing a consumer product. The firm produces many different items that are stocked in inventory [...]

Manufacturing strategies can be classified according to firms' competitive capabilities. Using cluster analysis, 164 large US manufacturing business units are classified according to their capabilities in terms of low price, design flexibility, volume flexibility, conformance, performance, speed, dependability, after sale service, advertising, broad distribution and broad line. A taxonomy is developed by differentiating the firms along two dimensions: scope of line and products and ability to differentiate themselves from competitors. Three main clusters are observed: caretakers, marketeers and innovators, the mapping of which is demonstrated using the two dimensions. Analysis of the interactions among competitive capabilities, business context and manufacturing activities is undertaken.