Avoiding the capacity cost trap: Three means of smoothing under cyclical production planning

Carl Philip T. Hedenstierna and Stephen M. Disney

International Journal of Production Economics, 2018, vol. 201, issue C, 149-162

Abstract: Companies tend to set their master production schedule weekly, even when producing and shipping on a daily basis—the term for this is staggered deliveries. This practice is common even when there is no marginal cost of setting a new schedule. We argue that the practice is sound for companies that use the ubiquitous order-up-to (OUT) policy to control production of products with a significant capacity cost. Under these conditions, the length of the order cycle (time between schedule updates) has a damping effect on production, while a unit (daily) order cycle can cause significant capacity costs. We call this the capacity cost trap.

Keywords: Inventory; Order-up-to policy; Reorder period; Overtime cost (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:201:y:2018:i:c:p:149-162

DOI: 10.1016/j.ijpe.2018.04.008

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