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

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  • Hedenstierna, Carl Philip T.
  • Disney, Stephen M.

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.

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  • Hedenstierna, Carl Philip T. & Disney, Stephen M., 2018. "Avoiding the capacity cost trap: Three means of smoothing under cyclical production planning," International Journal of Production Economics, Elsevier, vol. 201(C), pages 149-162.
    • Handle: RePEc:eee:proeco:v:201:y:2018:i:c:p:149-162
    DOI: 10.1016/j.ijpe.2018.04.008
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    References listed on IDEAS

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    1. Prak, Dennis & Teunter, Ruud & Riezebos, Jan, 2015. "Periodic review and continuous ordering," European Journal of Operational Research, Elsevier, vol. 242(3), pages 820-827.
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    1. Estefania Tobon-Valencia & Samir Lamouri & Robert Pellerin & Alexandre Moeuf, 2022. "Modeling of the Master Production Schedule for the Digital Transition of Manufacturing SMEs in the Context of Industry 4.0," Sustainability, MDPI, vol. 14(19), pages 1-28, October.

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