Analysis of the impact of responsiveness on the capital cost of a make-to-order multiproduct batch plant

Most academic models for strategic design of batch production plants focus on minimising capital and operational costs. However nowadays, responsiveness is an important key performance attribute in operations management. The main metric for responsiveness is the delivery lead time (DLT), being defined as the time between ordering and delivering of a customer order, also called the order fulfillment cycle time. In the context of plant design, we consider delivering as loading at the plant, assuming the customer or 3PL to be responsible for transport. In this paper, we aim to incorporate responsiveness in the design of a batch plant operating in a make-to-order (MTO) environment, by introducing a target DLT for the customer orders to be fulfilled over the strategic horizon. Additionally, as common for an MTO plant, non-dedicated storage tanks are installed, avoiding obstruction of production equipment while these customer orders wait for quality control and loading. Unlike most design models, the capital cost of these storage tanks is included in the objective function of our design model. Moreover, to design a MTO plant accounting for a target DLT for all individual orders, scheduling techniques are introduced, both in the mathematical model as in the heuristic needed to solve larger instances. The effect of the target DLT on the batch plant design is examined for multiple problem instances with different planning horizons, number of orders and total amount to be produced. As expected, the design cost increases non linearly with a decreasing target DLT. To quantify the exact impact of a lower DLT, the cost of responsiveness is expressed as a percentage of the minimum capital cost found if no DLT’s are specified. For our problems instances, it can be concluded that decreasing the DLT with 24 hours (1 day) incurs a capital cost increase between 0.82 % and 36.85 %.