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Impact of Partial Manufacturing Flexibility on Production Variability

University of Massachusetts, and Universidad de Salamanca (Spain), 160 Governors Drive, Amherst, Massachusetts 01003
Sony Entertainment Distribution, 555/21 Madison Avenue, New York, New York 10022
4Rsystems Inc., 1400 Liberty Ridge Drive, Suite 102, Chesterbrook, Pennsylvania 19087
muriel{at}ecs.umass.edu
anand_somasundaram{at}sonymusic.com
yzhang{at}4rsystems.com

As manufacturers in various industries evolve toward predominantly make-to-order production to better serve their customers’ needs, increasing product mix flexibility emerges as a necessary strategy to provide adequate market responsiveness. However, the implications of increased flexibility on overall system performance are widely unknown. We develop analytical models and an optimization-based simulation tool to study the impact of increasing flexibility on shortages, production variability, component inventories, and order variability induced at upstream suppliers in general multiplant multiproduct make-to-order manufacturing systems. Our results show that

1. Partial flexibility leads to a considerable increase in production variability, and consequently in higher component inventory levels and upstream order variability. Although a modest increase in flexibility yields most of the sales benefits, production variability is reduced as more flexibility is added to the system. Consequently, investments in additional flexibility may be justified when component inventories are expensive, or simply by the benefits associated with the smoother production.
   
2. The performance of flexible systems is highly dependent on the capacity allocation policies implemented. Policies that evenly distribute product demands to the available plants lead to consistently better performance because they avoid the misplacement of inventories by replicating the performance of a single-plant system.
   

Key Words: manufacturing capacity and flexibility planning; production variability; demand allocation; make-to-order manufacturing systems
History: Received: April 22, 2002; accepted: September 2, 2005.