Capacity Allocation for Dynamic Process Improvement with Quality and Demand Considerations

Suresh Chand, Herbert Moskowitz, Andreas Novak, Ishpal Rekhi and Gerhard Sorger
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Suresh Chand: Purdue University, West Lafayette, Indiana
Herbert Moskowitz: Purdue University, West Lafayette, Indiana
Andreas Novak: University of Vienna, Vienna, Austria
Ishpal Rekhi: Purdue University, West Lafayette, Indiana

Operations Research, 1996, vol. 44, issue 6, 964-975

Abstract: Management of process improvement activities is an essential part of the manufacturing strategy of a firm to remain globally competitive in the long run. This paper considers a manufacturing environment where process improvement activities require use of the productive capacity of the firm in addition to other investments. Thus the firm must allocate its productive capacity between production activities and improvement activities. The output of production activities is used to meet customer demand. Process improvement activities improve the quality of the output, which in turn leads to lower quality related costs (both internal and external) and possibly lower per-unit production cost. It is assumed that the demand function is downward sloping and that revenue is a concave function of output. A continuous-time, finite-horizon, profit maximization, resource allocation model is developed to find an optimal time path for process improvement activities and production activities. Computational results are provided to study the effect of various problem parameters on the optimal decisions.

Keywords: dynamic programming/optimal control; applications; optimal quality path; manufacturing; strategy resource allocation (search for similar items in EconPapers)
Date: 1996
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