Investment in facility flexibility under uncertain competitor market entry

For firms competing in markets characterized by short life cycles, quick changeover of manufacturing processes from one product generation to the next is critical. Longer changeovers delay a firm's market entry. As a firm's market entry time is delayed, its opportunity to accumulate demand is diminished. The extent to which demand is lost reflects the market entry time of the firm's competitor. A model is introduced to explicitly examine the effect of uncertainty associated with a competitor's market entry time on both manufacturing and marketing strategies. The firm's objective is to maximize expected profit obtained from a series of high volume products manufactured on a single facility.