Fast high precision decision rules for valuing manufacturing flexibility

Fast high precision decision rules for valuing manufacturing flexibility

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Article ID: iaor2001171
Country: Netherlands
Volume: 120
Issue: 1
Start Page Number: 108
End Page Number: 117
Publication Date: Jan 2000
Journal: European Journal of Operational Research
Authors: ,
Keywords: neural networks, programming: dynamic
Abstract:

The valuation of Flexible Manufacturing Systems is one of the most frequently undertaken productivity improvement activities. In practice, the introduction of an FMS into industry must be done on the basis of cost justification. Recently developed techniques for the evaluation of the value of flexibility typically include the computation of stochastic dynamic programs. However, the computational effort of stochastic dynamic programs grows combinatorially and limits application to real world problems. In this contribution we derive fast approximations to the stochastic dynamic program and compare their results to the exact solution. The proposed methods show an excellent worst case behavior (1%) for a wide range of volatility of the underlying stochastic profit margins and costs for switching the production mode. The computational effort is reduced by a factor of more than 200.

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