A quantification of the economic value of flexible capacity

Traditional methods for the economic justification of new manufacturing technologies fail to include benefits such as better quality, greater flexibility and reduced work-in-progress. In this paper the authors develop a technique to quantify the economic value of long-term flexibility in capacity through the use of dynamic programming. They define the economic value of flexibility as the difference in the net present value of profits that a flexible system achieves over a less flexible system. Two examples are presented.