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A net present value assessment of make-to-order and make-to-stock manufacturing systems

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  • Naim, M.M.
  • Wikner, J.
  • Grubbström, R.W.

Abstract

This paper shows the impact of using the net present value (NPV) on parameter selection in the ordering policy of a production planning and control system. Using a well understood and documented model, the net present value is used as an objective function to determine the discounted future variance costs resulting from the model's dynamics. The NPV of the variance (NPVv) is defined and applied to the model under make-to-order and make-to-stock conditions. We show that the cost structure of the manufacturing system defines the NPVv and hence aids in identifying the most appropriate control strategy to apply.

Suggested Citation

  • Naim, M.M. & Wikner, J. & Grubbström, R.W., 2007. "A net present value assessment of make-to-order and make-to-stock manufacturing systems," Omega, Elsevier, vol. 35(5), pages 524-532, October.
  • Handle: RePEc:eee:jomega:v:35:y:2007:i:5:p:524-532
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    References listed on IDEAS

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    1. Dejonckheere, J. & Disney, S. M. & Lambrecht, M. R. & Towill, D. R., 2003. "Measuring and avoiding the bullwhip effect: A control theoretic approach," European Journal of Operational Research, Elsevier, vol. 147(3), pages 567-590, June.
    2. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    3. Wikner, J. & Towill, D. R. & Naim, M., 1991. "Smoothing supply chain dynamics," International Journal of Production Economics, Elsevier, vol. 22(3), pages 231-248, December.
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    Cited by:

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    2. Lin, J. & Naim, M.M. & Purvis, L. & Gosling, J., 2017. "The extension and exploitation of the inventory and order based production control system archetype from 1982 to 2015," International Journal of Production Economics, Elsevier, vol. 194(C), pages 135-152.
    3. Yasser A. Davizón & César Martínez-Olvera & Rogelio Soto & Carlos Hinojosa & Piero Espino-Román, 2015. "Optimal Control Approaches to the Aggregate Production Planning Problem," Sustainability, MDPI, vol. 7(12), pages 1-16, December.
    4. Ghiami, Yousef, 2023. "An analysis on production and inventory models with discounted cash-flows," Omega, Elsevier, vol. 117(C).
    5. Helena Gaspars-Wieloch, 2019. "Project Net Present Value estimation under uncertainty," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 27(1), pages 179-197, March.
    6. Sarkar, Biswajit & Guchhait, Rekha & Sarkar, Mitali & Cárdenas-Barrón, Leopoldo Eduardo, 2019. "How does an industry manage the optimum cash flow within a smart production system with the carbon footprint and carbon emission under logistics framework?," International Journal of Production Economics, Elsevier, vol. 213(C), pages 243-257.

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