# Volume Flex

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...