MANUFACTURING PROCESS FLEXIBILITY: An inestimable strategic decision in the new world industry
The global industry has crossed throughout the modern history of humanity several massive changes and involvements, starting from nearly 1760 where machines, steam power, and water power were introduced into nowadays where smart factories and clean energy sources became the leading trends of the new industry. The industry literature has been one of the leading interests of both researches and scholars as it has a sensitive impact on the economy and the human’s life qualities. New ideas are constantly raising and evolving the tools and methods to improve both the productivity and the efficiency within the manufacturing plants. One of the emerging concepts in this field is ‘Manufacturing Process Flexibility’ as it influences not only the manufacturing process of a product within a plant but on the entire Supply chain design of the product and thus has a critical influence on the strategic decisions of any known company.
What is manufacturing Process flexibility?
Manufacturing Process flexibility (named also process flexibility) results from being able to build different types of products in the same plant or production facility at the same time. This allows for changing the product mix during production as demand varies. Process flexibility is determined by product assignment decisions meaning, decisions on which products are built at which plants or on which lines. When designing production/supply chain systems, dealing with demand and supply uncertainty has been an important topic of concern and so increasing manufacturing flexibility is a key strategy for efficiently improving market responsiveness in the face of uncertain future product demand.
The benefits of manufacturing Process flexibility
Process flexibility provides the ability to change volumes of products produced in response to demand changes, the benefits of flexibility can be then measured using two main criteria: increased expected sales and capacity utilization.
For certain demand:
Consider two plants each with an annual capacity of 100 units. For two products, A and B, assume that demands are known with certainty (table below).
While total demand matches total capacity, if each plant builds only a single product, (as in Figure below), there are imbalances between each product’s demand and the capacity available for building them. The result is that plant 1 has unused capacity and product B has unfilled demand. Adding flexibility, (as in Figure) balances demand and capacity resulting in greater sales and capacity utilization.
For uncertain demand:
To understand the benefits of flexibility for dealing with uncertain demand, reconsider the previous example with probabilistic demand as shown in the table below.
We assume that products A and B have the same demand distribution, but that the product demands are independent.
Demand uncertainty creates uncertainty in sales, capacity utilization, and lost sales in the following way: We assume that the production levels can be set after observing the demand levels. When demand exceeds plant capacity, we assume that the excess demand is lost and that sales just equal the plant capacity. With each plant dedicated to a single product, as in the Figure above, we can compute expected sales, lost sales, and capacity utilization.
For instance, actual demands will be 50 units for A and 150 units for B with a 1/9 chance. In this case, sales will be 50 units for product A and 100 units for B, lost sales are 0 units for A and 50 units for B, and overall capacity utilization is 75% (150 units/200 units). Considering similarly all possible combinations of demand, overall expected sales are 167 units, expected lost sales are 33 units, and expected capacity utilization is 83%.
With this example, we can show how adding flexibility effects sales and capacity utilization. Let each plant now build both products in any proportion within its capacity. All other data are the same. Now when actual demands are 50 units for A and 150 units for B, production in the plants can be shifted so that all demands are filled and capacity is fully utilized. With flexible plants, overall expected sales are 178 units, expected lost sales are 22 units, and expected capacity utilization is 89%.
This example illustrates that increasing process flexibility increases both expected sales and capacity utilization by providing the ability to change product mix in response to unforeseen demand changes.
how much and where flexibility should be added: the Chaining concept
One of the foundational contributions in the flexibility literature is by Jordan and Graves (1995) (hereafter J-G) where they introduced the chaining concept.
A “chain” is a group of products and plants which are all connected, directly or indirectly, by-product assignment decisions. The figure below shows an example of 2 chains.
Within a chain, a path can be traced from any product or plant to any other product or plant via product allocation links. No product in a chain is built by a plant from outside that chain; no plant in a chain builds a product from outside that chain. In terms of graph theory, a chain is a connected graph.
In a single-stage, multiple products, multiple plant setting, J-G showed that chaining is the most effective network configuration to hedge against demand uncertainty.
Using a limited number of links, a chaining configuration maximizes the degree of flexibility that results in the minimum possible demand shortfall, consequently minimum lost sales cost. They further show that longer chains outperform shorter chains and thus having one long chain that connects all supply and demand nodes is the ideal network configuration.
The principle of chaining implies that the benefits of total flexibility can be realized by building fairly similar products in the same plant. That is, becoming flexible does not require that all plants build, for example, cars and trucks. Rather, flexibility can be achieved by chaining if one plant builds a truck and a van and another builds the van and a car together. It is creating longer product-plant chains that result in flexibility benefits, not building diverse products in a single plant. This certainly suggests strategies for lowering the cost of achieving flexibility.
J-G demonstrated in their work that the most benefit of flexibility ( rather saying chaining) is not necessarily obtained by having full flexibility ( meaning that each plant can produce all types of products) but rather having a moderate and well-designed chain.
They considered a 10-product, 10-plant example where they assumed that each plant has a capacity of 100 units and that the expected demand for each product is also 100 units. The demand for each product is from a truncated Normal Distribution with a standard deviation of 40 units, and the minimum and maximum possible demands for each product are 20 and 180 units, respectively. Their simulation conducted that by adding 10 links to achieve the configuration in Figure below has about the same benefits as adding 90 links to achieve total flexibility.
COVID-19 and Manufacturing Process flexibility:
Organizations globally are experiencing unprecedented workforce disruption due to the spread of the COVID-19 virus. The shutdown of entire industries and countries led to unprecedented and unexpected Supply chain disruptions and higher dramatically the risk of supply shortage and transportation disruptions. Still, industries start to cope with the new-world challenges and the COVID-19 pandemic turns out to be more of a health and humanitarian crisis. That being said, Manufacturing process flexibility can be a strategic step to highly implement since not all manufacturing plants can be reopened for the course of the upcoming months and most industries face nowadays uncertain demand. Process flexibility would address the imbalances and shortages of meeting demands and optimizing the production capacity and even compensate for the production of full plants by linking these plants to well-addressed chains of plants.
Industry 4.0: the boost of Manufacturing process flexibility
Industry 4.0 is coming to revolutionize both the communication systems and the energy sources implemented within factories. Using data and smart objects as well as green and sustainable energy sources, plants are turned out to be also smart. The concept of smart factories gives the producer unprecedented opportunities and tools to turn out their plants to be highly flexible and at the same time real-time connected to other factories and thus creating well-responsive chains of plants. Industry 4.0 is aiming primarily to improve the client experience and to shift the industry from the economy of scale to the personalized economy which goes perfectly on the side with the discussed concept.
To sum up, Manufacturing process flexibility is a concept full of potential and realistic returns and improvements in both the industry and the economy. Still, the literature in this field isn’t as rich as it may seem to in terms of analytical researches since doing pure mathematical analysis turns to be heavily difficult and complex. As an alternative, many pieces of research opted to use simulation and algorithms to evaluate the efficiency and the setbacks of this concept.
- Principles on the Benefits of Manufacturing Process Flexibility; William C. Jordan and Stephen C. Graves (1991)
- Use of Chaining Strategies in the Presence of Disruption Risks; Michael Lim, Achal Bassamboo, Sunil Chopra and Mark S. Daskin (2011)