Capacity decision under preset service level and process flexibility: A combined application of genetic algorithm and sample-based optimization
Journal of Modelling in Management
ISSN: 1746-5664
Article publication date: 2 October 2018
Issue publication date: 15 October 2018
Abstract
Purpose
Process flexibility (PF) is seen as a hedging instrument against demand uncertainty. This paper aims to examine capacity decisions for both flexible and dedicated processes under production policies such as make-to-order and make-to-stock. The study identifies some relative benefits, in terms of expected profit, of the process flexible plant over the dedicated ones. Furthermore, the advantage appears to be contingent upon the decision on the preset service level.
Design/methodology/approach
Using the sample-based optimization procedure, a detailed computational analysis is undertaken to identify the conditions under which a flexible plant is preferred over a dedicated plant. A combination of genetic algorithm and sample-based optimization procedure is used to capture the effects of preset service level. The factors controlled in this paper include the demand variance, demand correlation, capacity investment cost and the product price.
Findings
According to this study, in a dedicated process changing to a flexible process is not justified for the same level of demand correlation even with high demand variance. In fact, a strict control on the preset service level prefers the dedicated strategy. The advantage of a flexible plant increases as the demand correlation decreases, product price decreases, price asymmetry increases or capacity investment cost increases. With a preset service level constraint, a flexible process should be preferred to a dedicated one only when the capacity investment cost is high or the products have low contribution margins.
Originality/value
The PF index is introduced in this paper to measure the benefit of a flexible plant over a group of dedicated plants. The benefits were found to be contingent upon the decision on the required service level.
Keywords
Acknowledgements
The authors thank the anonymous reviewers for their helpful comments that greatly contributed to improving the final version of the paper.
A.K. Chatterjee is deceased.
Citation
Bose, D., Chatterjee, A.K. and Barman, S. (2018), "Capacity decision under preset service level and process flexibility: A combined application of genetic algorithm and sample-based optimization", Journal of Modelling in Management, Vol. 13 No. 3, pp. 755-772. https://doi.org/10.1108/JM2-08-2017-0086
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited