On measurement and valuation of manufacturing flexibility

Abstract

The concept of flexibility has been a recurring theme in recent manufacturing literature. Manufacturing flexibility is widely acclaimed as a formidable competitive weapon in the arsenal of any manufacturing firm. Yet critical underpinnings of this concept are not well understood despite efforts by various researchers to classify different flexibility types in order to facilitate its measurement and valuation. This paper examines reasons why measurement of flexibility has remained difficult. It proposes that any measure must inevitably depend on factors such as the degree of uncertainty in the environment, management objectives, machine capabilities and configuration (control). Therefore it advocates surrogate measures such as the value of flexibility. A model illustrating how flexibility might be measured and its appropriate level chosen, in a specific scenario, is presented. Numerical examples reveal additional insights that might be useful to firms with characteristics that match those of the model.