Raturi: OM 585 1

Volume Flexibility in a Network

This exercise demonstrates the concepts of volume flexibility in a multiple product, multiple

plant network. It allows the participants to

1. Understand the relationship between capacity utilization and service levels as

measured by probability of a stock out and fill rate.

2. Understand how multiple plant networks create flexibility

3. Develop a working definition of flexibility (specifically volume flexibility)

4. Understand the concept of chaining and how limited flexibility gives almost the same

results as complete flexibility.

Source: Jordan, W. C. and Graves S.C. (1995). ‘Principles on the Benefits of Manufacturing

Process Flexibility’, Management Science’, 41(4), pp. 577-594.

Your firm makes 2 products A and B in two plants, 1 and 2. The demand for products A

and B is independ and identically distributed (i.i.d.) and could be 5, 10 or 15 with probability

1/3 each. Each plant has 10 units of capacity.

Product A Plant 1

Product B Plant 2

Case 1: The plants have no product flexibility (that is plant 1 makes product A and plant 2

makes product B). What is the probability of meeting demand of products A and B? What is

the fill rate of products A and B? (The fill rate is defined as the amount of demand met

divided by the expected demand).

Case 2: The plants have complete flexibility (that is plant 1 and plant 2 can make both

products A and B). Thus when demand for product A is 15 and for product B is 5, plant 1

makes 10 A and plant 2 makes 5B and 5A. What is the probability of meeting demand of

products A and B? What is the fill rate of products A and B? (The fill rate is defined as the

amount of demand met divided by the expected demand).

This exercise demonstrates the concepts of volume flexibility in a multiple product, multiple

plant network. Specifically, you conclude the following:

1. Designing multiple plant networks is a challenge: "plants" here refers to processing

centers...

Volume Flexibility in a Network

This exercise demonstrates the concepts of volume flexibility in a multiple product, multiple

plant network. It allows the participants to

1. Understand the relationship between capacity utilization and service levels as

measured by probability of a stock out and fill rate.

2. Understand how multiple plant networks create flexibility

3. Develop a working definition of flexibility (specifically volume flexibility)

4. Understand the concept of chaining and how limited flexibility gives almost the same

results as complete flexibility.

Source: Jordan, W. C. and Graves S.C. (1995). ‘Principles on the Benefits of Manufacturing

Process Flexibility’, Management Science’, 41(4), pp. 577-594.

Your firm makes 2 products A and B in two plants, 1 and 2. The demand for products A

and B is independ and identically distributed (i.i.d.) and could be 5, 10 or 15 with probability

1/3 each. Each plant has 10 units of capacity.

Product A Plant 1

Product B Plant 2

Case 1: The plants have no product flexibility (that is plant 1 makes product A and plant 2

makes product B). What is the probability of meeting demand of products A and B? What is

the fill rate of products A and B? (The fill rate is defined as the amount of demand met

divided by the expected demand).

Case 2: The plants have complete flexibility (that is plant 1 and plant 2 can make both

products A and B). Thus when demand for product A is 15 and for product B is 5, plant 1

makes 10 A and plant 2 makes 5B and 5A. What is the probability of meeting demand of

products A and B? What is the fill rate of products A and B? (The fill rate is defined as the

amount of demand met divided by the expected demand).

This exercise demonstrates the concepts of volume flexibility in a multiple product, multiple

plant network. Specifically, you conclude the following:

1. Designing multiple plant networks is a challenge: "plants" here refers to processing

centers...