Manufacturing flexibility at the plant level

Managers have two basic alternatives for addressing the challenge posed by variable demand: (1) build manufacturing plants with excess capacity and /or stock excess goods in inventory to help smooth over fluctuations in demand, or (2) increase the flexibility of their manufacturing plants so that production can be varied more easily to match changes in demand. This paper focuses on the second alternative and examines two types of flexibility using two examples based on the automobile industry. First, process flexibility is defined as the ability of a single manufacturing plant to make more than a single product (in this case products are different car models), and its is shown that a limited degree of process flexibility is very valuable for dealing with variations in demand. Second, machine flexibility is defined in terms of a changeover cost, measured in terms of the capacity or production which is lost when a plant must produce more than a single car model. Machine flexibility is shown to have a moderating effect on process flexibility, but one which does not necessarily cancel out the benefits of process flexibility.