Information inaccuracy: Implications for economic production scheduling

Information inaccuracy: Implications for economic production scheduling

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Article ID: iaor19961195
Country: Netherlands
Volume: 42
Issue: 1
Start Page Number: 51
End Page Number: 66
Publication Date: Nov 1995
Journal: International Journal of Production Economics
Authors: ,
Keywords: net present value
Abstract:

A number of articles have recently appeared proposing the use of NPV and similar economic scheduling performance measures. Much of this research has concentrated on developing methods to maximize NPV. However, it is assumed in almost all these studies that the cash flow information and cost rate parameters are all known with certainty. For confident use of NPV it would be beneficial to know the robustness of this measure to economic misspecification. This research study addresses the issue of economic information error by developing a simulation model of a jobshop that includes varying levels of information misspecification. The study considers a variety of time-based and economically oriented performance measures along with a number of classical and economic order-release and dispatch scheduling rules. Varying rates of shop utilization and due date tightness were also examined. The results show that NPV is relatively robust to information errors. Average errors must be of the magnitude of at least 40% before time-based measures such as mean flowtime and mean tardiness are financially preferable. At average error levels greater than 40%, the economic-based measures may be misguided by the poor economic information, making their schedules of less worth. However, with low utilization rates, many time-based measures are as good, or almost as good, as NPV in maximizing NPV with information error, even with low information error levels. Under such conditions, the use of the time-based measures may be preferable due to their simplicity.

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