A stochastic dynamic programming approach for multi-site capacity planning in TFT-LCD manufacturing under demand uncertainty

The study focuses on the dynamic multi-site capacity planning problem in the thin film transistor liquid crystal display (TFT-LCD) industry under stochastic demand. Capacity planning refers to the process of simultaneously implementing a robust capacity allocation plan and capacity expansion policy across multiple sites against stochastic demand. In addition, the demand situation in TFT-LCD manufacturing follows Markov properties, in which the correlations of the demand variations in the consecutive periods are high, and the demand status in the next period is stochastically determined by the present one. Therefore, this study constructs a stochastic dynamic programming (SDP) model with an embedded linear programming (LP) to generate a capacity planning policy as the demand in each period is revealed and updated. Using the backward induction algorithm, the SDP model considers several capacity expansion and budget constraints to determine a robust and dynamic capacity expansion policy in response to newly available demand information. The LP model then considers numerous TFT-LCD practical characteristics and constraints to decide a capacity allocation plan, and generate a one-period immediate reward used by the optimality recursion equation of the SDP model. Numerical results are also illustrated to prove the feasibility and robustness of the proposed SDP model compared to the traditional deterministic capacity planning model currently applied by the industry.