The objective of this work is to provide insight into the sourcesand magnitude of the costs that result from lost market responsivenessdue to long capacity lead times. A model has been developed to determinethe impact of tool lead times on the expected present value ofmonolithic fabs and modular a fab over the fab lifetime. The model makesthe following assumptions and approximations: Demand follows a randomwalk characterized by a known drift rate and volatility; Capacity leadtimes are known in advance longer capacity lead times result in toolsbeing ordered earlier than tools with late lead times; Management hasthe option of sparsely populating a fab initially and then addingadditional tools as needed. This is referred to as a modular fab. Costparameters representing modern 200 mm wafer fabs are used. Based on theabove assumptions optimal capacity expansion schedules are numericallygenerated. Initial results show that as capacity lead times get shorter,initial fab size is likely to be smaller and future capacity additionsare likely to become more frequent. If capacity lead times are short,fab capacities can be more accurately matched to demand, achievinghigher expected revenues. The increase in revenues can be used toevaluate the financial value of shorter capacity lead times
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