Design of flexible capacity plan for multiple items in a single production facility

In this paper, we consider the problem of determining production lot size and capacity requirement plan for multiple products, which is produced on a single production facility. Traditionally, the production capacity in such production system is assumed fixed. However, the economical verification of either capacity expansion or capacity reduction should be involved in the design of such production systems. In this paper, we incorporate the cost/benefit aspects in a capacity expansion and reduction decision. We develop the mathematical model dealing with this decision problem and propose an effective solution procedure. We expect that this kind of decision problem can be utilised as an alternative framework for make-or-buy decisions. Following an illustrative example, we discuss the managerial implications obtained from this study and further extensions of this generic model.