Manufacturing capacity planning strategies

When planning for a new manufacturing system to produce several products over a planning horizon, firms usually face an important decision regarding how to select the optimal quantity and portfolio of product-dedicated and flexible capacities. Flexible systems may alleviate the unfavorable effects of demand uncertainties, however they require higher investment costs compared to dedicated systems. In this paper, we formulate the optimal capacity selection problem and perform numerical studies to provide insights on how these decisions are affected by the investment costs, product revenues, demand forecast scenarios and volatilities over the planning period.