On the cost of using capacity flexibility – a dynamic programming approach

This paper considers the problem of how to evaluate the resource use for sales opportunities in a production situation that is dually constrained: in operator capacity and machine capacity. The operator capacity is flexible, while the machine capacity is not. Therefore, there is a certain machine overcapacity. This overcapacity can be used for sales opportunities. Important then is how to evaluate the resource use for these sales opportunities. The influence of uncertainty is important in this costing problem. Sales opportunities come one by one and have to be accepted one by one, without knowing the attractiveness of future sales opportunities. Dynamic programming is used to investigate the influence of this uncertainty.