Evaluating volume flexibility instruments by design-of-experiments methods

Abstract

Volume flexibility enables firms to cope with demand fluctuations, but being flexible incurs costs. Hence, firms are challenged to choose economically adequate volume flexibility instruments. To tackle this challenge we present a three-step approach comprising a preliminary analysis and a model of a production system that takes into account different volume flexibility instruments. The model is solved by minimising production costs. For a multi-dimensional sensitivity analysis we use design-of-experiments methods in the third step to assess the impact of the instruments and their interactions. In a case study we apply our approach to a real-life NP-hard production planning problem of a car manufacturer that is solved by approximate dynamic programming. Using design-of-experiments methods we gain managerial insights into the value of different combinations of volume flexibility instruments.

Keywords:

• production planning
• design of experiments
• volume flexibility

Acknowledgements

The authors are grateful to two anonymous referees for their helpful comments and suggestions.

Notes

Notes

1. A noteworthy aspect of the qualitative empiric research of Salvador et al. (2007) is that the authors reveal the side-effects of steps intended to increase only mix or only volume flexibility. These side-effects can be conflicting or synergistic, i.e. promote one type of flexibility at the expense of the other or support both types.

2. Half-normal plots can also be used for this purpose and are recommended (Montgomery 2005, p. 227). For reasons of demonstration we choose a normal plot.