Research shows why slight increase in flexibility of manufacturing plants optimizes efficiency and cost

December 2012

PROBLEM

Ensuring that goods are always on hand requires that corporations build flexibility into their manufacturing operations so they can respond to changes in supply and demand as they arise. Full flexibility is achieved when every manufacturing facility of a company has the capacity to produce every product. But costs can quickly skyrocket with the full flexibility model because a company needs to invest in tools and processes to ensure that every plant is capable of producing all products.

In a seminal paper published in Management Science in 1995, William Jordan of General Motors and Stephen Graves of the MIT Sloan School introduced the concept of chaining, defined as a group of products and plants connected directly or indirectly by product assignment. They show empirically that a small investment in flexibility designed appropriately can achieve almost all the benefits of full flexibility. More specifically, their numerical experiments show that a chaining strategy called the “long chain” — in which plants are endowed with the capacity to produce exactly two different products and every product is produced by exactly two plants — is nearly as efficient as full flexibility, but costs far less. Since then, numerous research papers have demonstrated through numerical experiments that the long chain design can be applied to other systems, including the cross-training of workers on an assembly line, supply chains, queuing networks, and people and tasks in a call center. But until now, nobody has explained or proven why the long chain works better than other flexibility models.

APPROACH

The long chain is so named because on paper, it connects a list of manufacturing facilities with a list of products by arcs to create a chain. Facility A can produce Product 1 as well as Product 2. Facility B can produce Product 2 and Product 3, and so on with the final facility in the chain able to produce both the last and first products [see figure]. The addition of this final arc from the last facility to first product