Evaluating the expansion flexibility of flexible manufacturing systems in uncertain environments

Flexibility in manufacturing systems allows the management to actively react to some unexpected market events, allowing them to take advantage from these events, and simultaneously reduce their losses. Flexible systems have greater costs than dedicated ones. Thus, a correct evaluation of this kind of investment is needed to justify the additional costs. Nevertheless, traditional 'static' techniques often fail in this analysis. This paper uses an approach based on real options theory to evaluate the expansion flexibility of manufacturing systems, i.e., the possibility to expand the production capacity in response to deviations in product demand. A quantitative model based on the Monte Carlo technique was developed to assess this option. In order to obtain one of the required input parameters of the model, a fuzzy logic interface was implemented.