ORIE Colloquium: Yehua Wei (MIT) - Understanding the Effectivness of Sparse Process Flexibility
Thursday, February 14, 2013 at 3:00pm
Frank H. T. Rhodes Hall, 253
The seminal paper of Jordan and Graves (1995) empirically observed that by adding a little bit of flexibility to create what is known as the "long chain", firms can achieve almost all the benefit of complete capacity pooling. While this observation is now hugely influential in both academia and industry, with the exception of asymptotic analysis, there is little theory that explains this effectiveness.
Our objective is to develop theories to explain the effectiveness of the long chain, and from the theory, derive new insights for practitioners. For this purpose, we establish a novel decomposition for the long chain under deterministic demand. The decomposition is then applied to characterize the expected performance of the long chain as a expectation of a function on a random walk. Using this characterization, we justify the empirical observations on the effectiveness of the long chain, while also derive new insights on the effectiveness of the long chain as the system size grows.