A quantification of the economic value of flexible capacity

Abstract

Traditional methods for the economic justification of new manufacturing technologies fail to include benefits such as better quality, greater flexibility and reduced work-in-progress. In this paper we develop a technique to quantify the economic value of long-term flexibility in capacity through the use of dynamic programming. We define the economic value of flexibility as the difference in the net present value of profits that a flexible system achieves over a less flexible system. Two examples are presented.

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Notes on contributors

P. M. GRIFFIN

To whom correspondence should be addressed.