Flexible automation investments: A problem formulation and solution procedure

In this paper, a multi-period replacement model, based on a mixed integer nonlinear programming formulation, is developed for flexible automation investments. The model takes into account the costs, benefits and effective utilization of several types of flexibility. The decision variables pertain to the selection and optimal implementation sequence for new, CNC modules, the replacement schedule for current equipment and the aggregate production plans for transition and subsequent periods in the planning horizon. The objective function maximizes the present worth of the cash flows over the planning horizon. A two-level, exact solution method is also developed, utilizing dynamic programming methodology for the higher level sub-problem and mixed integer-linear programming for the lower level sub-problem.