Traditional methods for the economic justification of new manufacturing technologies fail to include benefitssuch 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. Wedefine the economic value of flexibility as the difference in the net present value of profits that a flexible systemachievesover a lessflexible system.Twoexamplesare presented.
All Science Journal Classification (ASJC) codes
- Strategy and Management
- Management Science and Operations Research
- Industrial and Manufacturing Engineering