1. 1 1 Institute of Industrial Engineering & Management National Yunlin University of Science & Technology Jen-Hao Lo Advisor: Chwen-Tzeng Su, Ph.D. Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

2. OUTLINE  Introduction  Motivation and background  Research objective  Research Assume  Organization of the dissertation  Literature Review  Research Method  Expected results 2 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

3. INTRODUCTION 3 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

4. (Unit of billion) (Unit of piece) MOTIVATION AND BACKGROUND 4 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

5. MOTIVATION AND BACKGROUND 5 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

6. MOTIVATION AND BACKGROUND  Lack of space in Warehousing  Take the space demand  Evaluate expansion or outsourcing decisions  Establish investment evaluation Expansion or Outsourcing Decisions ARIMA Forecast Combine with Real Options System of Investment Evaluation Decisions 6 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

7. RESEARCH OBJECTIVE  Understand expansion or outsourcing decisions cost  Control uncertain factors by real options  Provide investment evaluation for manager  Establish system of investment evaluation decisions 7 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

8. RESEARCH ASSUME  Sales are fixed annual gain.  The space can’t 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. 8 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

9. ORGANIZATION OF THE DISSERTATION 9 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

10. LITERATURE REVIEW 10 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

11. LITERATURE REVIEW  Capacity Planning  ARIMA Forecast  Real Option Karabuk et al.(2003) Capacity Allocation Capacity Expansion Karabuk et al.(2003) Capacity Allocation Capacity Expansion Bottleneck machine Ancillary equipment Build new plant (Fleischmann et al.,2006 ) Bottleneck machine Ancillary equipment Build new plant (Fleischmann et al.,2006 ) 11 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

12. 國立雲林科技大學 工業工程與管理所 LITERATURE REVIEW AuthorYearResearch and result Suryani2011 Capacity planning for passenger demand. Find out expansion timing and impact of other factors include service standards, population number, waiting time, air freight. Fleischman n et al. 2006 Definite capacity expansion if plan is a long-term investment plan. Investment plans need to consider the future demand, budget and land space for decision Karabuk et al 2003 The 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. Freidenfeld s 1981Defined capacity expansion. The best expansion decisions should consider demand for products, expansion of budget and price. 12

13. Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center LITERATURE REVIEW  Capacity Planning  ARIMA Forecast  Real Option Box and Jenkins (1976) Auto-Regressive (p) Moving Average(q) 13 國立雲林科技大學 工業工程與管理所

14. 國立雲林科技大學 工業工程與管理所 LITERATURE REVIEW AuthorYearResearch and result Loganatha n & Ibrahim 2010 Use 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 demand 楊俊宜 2007 Use 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. 陳于倩 2007 Set of three models: regression model, SARIMA combination of the two, comparing model predictive capability, use predictive power :MAPE and Theil inequality to determine. Makridaki s 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. 14

15. Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center Compute NPV Modeling Uncertaint y factors Integrate (RO) Assess Values LITERATURE REVIEW  Capacity Planning  ARIMA Forecast  Real Option Copeland and Antikarov (2001 ) 15 國立雲林科技大學 工業工程與管理所

16. 國立雲林科技大學 工業工程與管理所 LITERATURE REVIEW AuthorYearResearch and result Lee et al. 2011 Set 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. O’Brien et al. 2003 Explore 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 profits Trigeorgis 1999 Classified 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 Scholes 1973Find 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 standard 16

17. RESEARCH METHOD 17 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

18. RESEARCH METHODS AS/RS Cost Tradition Storehouse Cost Outsourcing Cost AS/RS Cost Tradition Storehouse Cost Outsourcing Cost 18 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

19. RESEARCH METHODS-INTRODUCTION  The 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 demand 19 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

20. Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center RESEARCH METHODS-FORECAST  Products 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 國立雲林科技大學 工業工程與管理所

21. 國立雲林科技大學 工業工程與管理所 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center RESEARCH METHODS-FORECAST  Predictive ability of discrimination MAPE Predictive ability Excellent Good General Bad 21

22. RESEARCH METHODS-FORECAST  Sales transform into space demand ， 張倫 (2004) 22 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

23. RESEARCH METHODS-COST MODEL 23 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

24. RESEARCH METHODS-COST MODEL 24 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

25. RESEARCH METHODS-COST MODEL 25 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

26. RESEARCH METHODS- REAL OPTION ASSESS Expansion Cost Outsourcing Cost Discounted Cash Flow (DCF) Real Option Assess Uncertainty factors 26 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

27. Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center  Copeland and Antikarov(2001)  Real option implement steps ： RESEARCH METHODS- REAL OPTION ASSESS 27 國立雲林科技大學 工業工程與管理所

28.  Real option basic parameters ： 1. Value of the Underlying Risky Asset ： Investment value 2. Exercise Price ： Expansion & outsourcing cost 3. Time to Expiration of the Option ： Every year 4. The Standard Deviation of the Value of Underlying Risky Asset ： Investment variability factors 5. The Risk-Free Rate of Interest over the Life of the Option ： U.S. treasury bond interest rate risk-free interest rate(4.5%) 6. Paid Out by the Underlying Asset ： No dividends RESEARCH METHODS- REAL OPTION ASSESS 28 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

29. RESEARCH METHODS- REAL OPTION ASSESS 29 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

30. Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center  Modeling Uncertainty Factors ：  Trigeorgis （ 1991 ） Log-Transformed Binomial Method 1. Determine parameters 2. Binomial tree 3. Determine final value 4. Reverse operation process RESEARCH METHODS- REAL OPTION ASSESS 30 國立雲林科技大學 工業工程與管理所

31. Uncertainty Expansion Decision Uncertainty Outsourcing Decision Best Investment Decisions RESEARCH METHODS- REAL OPTION ASSESS 31 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

32. EXPECTABLE RESULT  Combination 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. 32 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所

33. THE END Thanks for listen & offering advice! 33 Expansion or Outsourcing Decisions with Demand for Warehouse Space — A Case Study of Warehousing and Transportation Center 國立雲林科技大學 工業工程與管理所