Manufacturing process changes: myopic and long-term planning

J. Vits, L. Gelders and L. Pintelon

International Journal of Production Research, 2007, vol. 45, issue 1, 1-27

Abstract: The introduction of process changes is frequently used by management to improve manufacturing competencies. However, the implementation of process changes disturbs learning driven by manufacturing activities. This work introduces a model to explore myopic and long-term process change strategies that maximize the total discounted profits of operating a production system. In accordance with the existing literature, the key benefit sought from process change implementation is an increase in effective capacity. Due to the learning curve effect, the unit production costs decrease with the level of experience generated by operating the production system. On the other hand, changing the production process makes a part of the accumulated experience obsolete. It is found that a myopic planner should increase investment in process change if the level of experience increases. The economic law of diminishing marginal returns from investments in effective capacity induces the myopic producer to limit investment in process change if the effective capacity level of a production system is already high. The structure of the optimal long-term process change policy echoes the optimal myopic process change policy, although the level of process change efforts can differ. Especially for very low and very high effective capacity levels, optimal long-term planning differs from optimal myopic planning.

Date: 2007
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DOI: 10.1080/00207540500251596

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