Optimal acquisition of automated flexible manufacturing processes

The authors formulate the problem of converting a labor-intensive batch production process to one that incorporates flexible automation as a finite-state Markov decision process. Interest rates and the level of automated technology influence both operating and acquisition costs and are treated as random variables. The model specifies the optimal level of capacity to convert to flexible automation. The optimization criterion is the minimization of the sum of expected, discounted costs incurred over a finite planning horizon. The optimal acquisition strategy depends upon the time period, the current interest rate, the current level of technology, and a measure of the remaining capacity that is not automated. The authors investigate the structure of optimal acquisition strategies using mathematical analysis and simulation. The present objective is to illustrate the qualitative characteristics of optimal strategies for acquiring flexible automation. As a step toward the implementation of the model, the authors examine the qualitative consequences associated with specifying classes of inventory and acquisition costs functions.