Direct and indirect effects of product mix characteristics on capacity management decisions and operating performance

Direct and indirect effects of product mix characteristics on capacity management decisions and operating performance

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Article ID: iaor2002647
Country: United States
Volume: 13
Issue: 3
Start Page Number: 241
End Page Number: 265
Publication Date: Jun 2001
Journal: International Journal of Flexible Manufacturing Systems
Authors:
Keywords: production
Abstract:

Studies of the performance effects of product mix complexity typically treat plant capacity utilization and machine scheduling (for example, setup frequency) as exogenous factors associated with technology choices, economies of scale, and the level of market demand. However, capacity utilization and machine scheduling also reflect tactical operating decisions taken by local managers to maximize short-run performance. If managers rationally anticipate a negative relation between performance and product mix complexity, we expect tactical operating decisions to be used to mitigate performance degradation. Previous empirical studies that ignore this simultaneity provide an incomplete assessment of the performance effects of product mix complexity. This paper uses path analysis to examine the combined impact of product mix on capacity management decisions and operating performance in three textile manufacturing plants. The results support the hypothesis that product mix acts through capacity management decisions to reduce performance from the level implied by direct effects alone. The evidence also supports the behavioral proposition that managers use capacity management decisions strategically – creating production slack when product mix is anticipated to most affect performance. However, although managers use discretionary capacity management intesively when the product mix is composed of complex, heterogeneous products, they are unable or unwilling to use these decisions to fully offset the performance impact of product mix.

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