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      Tactical capacity management under capacity flexibility

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      Author
      Alp, Osman
      Tan, T.
      Date
      2008
      Source Title
      IIE Transactions
      Print ISSN
      0740-817X
      Publisher
      Institute of Industrial Engineers
      Volume
      40
      Issue
      3
      Pages
      221 - 237
      Language
      English
      Type
      Conference Paper
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      Abstract
      In many production systems a certain level of flexibility in the production capacity is either inherent or can be acquired. In that case, system costs may be decreased by managing the capacity and inventory in a joint fashion. In this paper we consider such a make-to-stock production environment with flexible capacity subject to periodic review under non-stationary stochastic demand, where we allow for positive fixed costs both for initiating production and for acquiring external capacity. Our focus is on tactical-level capacity management which refers to the determination of in-house production capacity while the operational-level integrated capacity and inventory management is executed in an optimal manner. We first develop a simple model to represent this relatively complicated problem. Then we elaborate on the characteristics of the general problem and provide the solution to some special cases. Finally, we develop several useful managerial insights as to the optimal capacity level, the effect of operating at a suboptimal capacity level and the value of utilizing flexible capacity.
      Keywords
      Capacity management
      Fixed costs
      Flexible capacity
      Inventory
      Overtime production
      Production
      Temporary workforce
      Cost effectiveness
      Inventory control
      Job analysis
      Permalink
      http://hdl.handle.net/11693/26893
      Published Version (Please cite this version)
      http://dx.doi.org/10.1080/07408170701488052
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      • Department of Industrial Engineering 677
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