Measurement of manufacturing flexibility: A value based approach

Flexibility is emerging as one of the key competitive strengths in today’s manufacturing systems. Measuring the flexibility of manufacturing systems is important to operations managers engaged in decision making on strategic issues related to flexibility. Flexibility is widely recognized as a multi-dimensional attribute. Most of the studies reported in the literature have focused on measuring separate dimensions independently and also have tended to be non-financial in nature. As a result, many of these measures have only limited application in strategic decision making. In this paper the authors consider the measurement of the aggregate flexibility of a manufacturing system by investigating the joint effect of the flexibilities on a variety of dimensions when measurement for a medium-term time horizon is appropriate. They propose a value-based approach in which flexibility is measured by the ability of a manufacturing system to generate high net revenues consistently across all conceivable states of the nature in which it may be called upon to function. The authors suggest the ratio of the mean to the standard deviation of the distribution of optimal net revenues as the flexibility measure. They develop a stochastic mathematical programming formulation that facilitates the modeling of the manufacturing flexibility on different dimensions and the determination of the distribution of the net optimal revenues across all possible states. The authors exploit the special structure of the present formulation to efficiently solve large problems that arise in some practical situations. They illustrate the application of the model using a numerical example which shows that the value of each type of flexibility varies depending on how it enhances the revenues generated by the system. The authors also find that synergistic benefits can be gained by combining different types of flexibilities. The present model provides an approach to determine the aggregate value of manufacturing flexibility and to explore the trade-offs that may exist among the different dimensions of flexibility.