Cash-flow oriented buffer allocation in stochastic flow lines

This paper defines the problem of buffer space allocation in flow lines as an investment problem. A model is developed and solution techniques are described that can be used to determine buffer allocations that maximize the expected net present value of the investment, including machines, buffers and inventory. Production rates and inventory levels are explicitly linked to projected cash flow to assess the economic consequences of the buffer allocation. Several examples of linear flow lines as well as assembly/disassembly systems and flow lines with rework loops are analysed numerically. These examples demonstrate the importance of the buffer allocation problem and provide intuition with respect to the structure of optimized solutions. A result is that as product quality in a system with a rework loop improves, an optimally designed system can receive more buffer spaces and may use more inventory. This possibly counterintuitive result is due to the economic perspective on the buffer allocation problem.