| Abstract: | Flexibility in manufacturing has been identified as one of the key factors to success in the marketplace. Many types of flexibility have been identified in the literature among which volume flexibility is one of the most important. Volume flexibility of a manufacturing system is defined as its ability to be operated profitably at different overall output levels. Volume flexibility permits a manufacturing system to adjust production upwards or downwards within wide limits. In this paper, we develop an aggregate production planning model for volumeflexible production systems. The model can be used with a Monte Carlo simulation to evaluate the optimal level of investment in volume flexibility for a firm operating under a given set of market conditions. In addition, the model can be used to develop some conclusions about the relationship between the value of volume flexibility and the cost of holding inventory, the cost of shortage, forecast accuracy, and the length of the planning horizon. |
