Impact of Partial Manufacturing Flexibility on Production Variability

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 flexibility on shortages, production variability, component inventories and order variability induced at upstream suppliers in general multi-plant multi-product make-to-order manufacturing systems. Our results show that: 1. Partial flexibility leads to a considerable increase in production variability, and consequently in 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 will be justified when component inventories are expensive. 2. The performance of flexible systems is highly dependent on the capacity allocation policies implemented. Policies that evenly distribute capacity to product demands lead to consistently better performance, since they avoid the misplacement of inventories by replicating the performance of a single-plant system. These insights and the simulation tool can be used by practitioners to guide the design of their flexible production systems, trading off the initial capital outlay versus the sales benefits and the expected system operational costs.