Financial risk management for new products considering plant location, pricing and budgeting

The classical capacity planning problem considers the determination of the initial capacity for a particular network of processes and the timing and size of the future expansions. The data used for such model are the forecasted demands and prices of raw material and products, as well as the utility costs. This paper expands the problem to consider the above simultaneously with plant location, transportation from raw materials markets and transportation of product to consumer markets. We also add budgeting constraints, which follow the cash flow through the life of the project and allow the project to finance the expansions. Finally, we add considerations about the price of the product in different markets. To illustrate the technique, we consider the case of ethyl lactate, a green solvent. The model was made stochastic and financial risk is managed.