Measurement of manufacturing flexibility: A value based approach

Abstract

AbstractFlexibility is emerging as one of the key competitive strengths in today's manufacturing systems. Measuring the flexibility of manufacturing systems is important to operations managers engaged in decision making on strategic issues related to flexibility. Flexibility is widely recognized as a multidimensional attribute. Most of the studies reported in the literature have focused on measuring separate dimensions independently and also have tended to be non‐financial in nature. As a result, many of these measures have only limited application in strategic decision making. In this paper we consider the measurement of the aggregate flexibility of a manufacturing system by investigating the joint effect of the flexibilities on a variety of dimensions when measurement for a medium‐term time horizon is appropriate. We propose a value‐based approach in which flexibility is measured by the ability of a manufacturing system to generate high net revenues consistently across all conceivable states of the nature in which it may be called upon to function. We suggest the ratio of the mean to the standard deviation of the distribution of optimal net revenues as the flexibility measure.We develop a stochastic mathematical programming formulation that facilitates the modeling of the manufacturing flexibility on different dimensions and the determination of the distribution of the net optimal revenues across all possible states. We exploit the special structure of our formulation to efficiently solve large problems that arise in some practical situations. We illustrate the application of the model using a numerical example which shows that the value of each type of flexibility varies depending on how it enhances the revenues generated by the system. We also find that synergistic benefits can be gained by combining different types of flexibilities. Our model provides an approach to determine the aggregate value of manufacturing flexibility and to explore the trade‐offs that may exist among the different dimensions of flexibility.