Coordinating Production Order and Scheduling Policy under Capacity Imbalance

Abstract

This paper comes from an observation that overemphasis on capacity utilization measure, which is usual under capacity shortage, can seriously hurt the firm's profit and potential process improvement. We suggest a model that can be used in designing a coordination scheme for decentralized marketing and manufacturing activities. Using a price- and time-sensitive demand and capacitated lotsizing model, we derive an effective communication medium between marketing and manufacturing. This Balance Indicator of process capacity and flexibility also implies that the increase in capacity availability and setup time reduction should be balanced by its market requirements. This is particularly important when a firm tries to improve its process capability by kaizen. Further, the model can be used to show the comparative performances of scheduling policies under capacity imbalance. We show that shortening the scheduling cycle can improve the firm profit without changing the simple scheduling rule.