Planning capacity utilization in an assemble-to-order environment

One strategic design parameter in capacity management is the setting of a planned level of capacity utilization at which the manufacturing operation will operate long term. This paper seeks to examine systematically the implications of varying levels of capacity utilization within an assemble-to-order firm through experiments with a simulation model. Four performance measures and a total weekly cost measure are analysed under nine capacity utilization levels, two demand patterns, and 11 ratios of the costs of idle capacity to the costs of later orders. The prescribed capacity utilization level is a function of the firm’s competitive goals, demand pattern, and cost structures.