Seasonal inventories and the use of product-flexible manufacturing technology

As advancing technology makes Flexible Manufacturing Systems (FMSs) a viable option for an increasing number of firms and products, determining their economic value has become increasingly important. Despite considerable research in this area, the effect of the ability or inability to hold interperiod inventories on the value of FMSs has received relatively little attention. This paper proposes a model of the interaction between investment in product-flexible manufacturing technology and the use of seasonal inventories. Analytic results as well as numerical examples are presented for the case of periodic market conditions that are uncertain at the time the investment decision must be made. The analysis leads to some surprising results, including the observation that interperiod inventories and flexible capacity can be complements as well as substitutes.