A Little Flexibility is All You Need – Optimality of Tailored Chaining
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Date: 05-01-2008
Start Time:
1:00pm
End Time: 2:00pm
Speaker: Jan Van Mieghem, Kellogg School of Management
Location: Uris 333
ABSTRACT
Deciding on the appropriate type and amount of flexibility is a classic management problem. The literature has shown that the choice between specialization and flexibility is not an “all-or-nothing” proposition. It is typically better to use a tailored portfolio of dedicated and flexible resources \emph{and} a little flexibility goes a long way. Let ``level-$k$'' flexibility refer to a resource's ability to process $k$ different types of products. Simulations have shown that, when serving $n>2$ product types, using only level-2 flexible resources in a special configuration called chaining achieves almost all the benefits of total flexibility.
In this paper we merge the concepts of chaining and tailoring in dynamic processing systems where the type and amount of flexibility is optimized using a Brownian approximation that is asymptotically correct. We show analytically that for symmetric systems serving $n$ classes and for most practical flexibility cost structures the optimal flexibility configuration invests a lot in dedicated resources, a little in only bi-level flexibility, but nothing in level-$k>2$ flexibility, let alone full flexibility. Dedicated resources provide base capacity to serve the majority of the demand while only a small amount of bi-level flexibility is sufficient to serve the variable demand: dedicated capacity is sized roughly proportional to demand while flexible capacity is roughly proportional to the square root of demand and to its coefficient of variation.
Our main result can be restated as saying that tailored chaining is optimal for symmetric systems. We investigate the accuracy and robustness of our results in asymmetric systems. It is obvious that the tailored flexible configuration will mirror the asymmetry in the demand. Indeed, our analytic results suggests that the optimal amount of flexible capacity should be sized roughly proportionally to the coefficient of variation in the demand served by the flexible resource and to the square root of its arrival rate, which is indeed observed in simulations. Yet our mail result remains: even asymmetric systems do not seem to need $k>2$-level flexible resources and complete resource pooling is suboptimal.
Joint work with: Achal Bassamboo, Kellogg School of Management, Northwestern University and Ramandeep S. Randhawa, McCombs School of Business, The University of Texas at Austin.
BIO
Jan Van Mieghem is the Harold L. Stuart Professor of Managerial Economics and Professor of Operations Management at the Kellogg School of Management at Northwestern University. He also serves as the chair of Kellogg’s Managerial Economics and Decision Sciences department. His research and teaching focuses on product, service and supply chain operations and studies both strategic questions as well as tactical execution. Professor Van Mieghem has been past editor of the operations and supply chain area of Operations Research and has served on the editorial boards of several other leading journals.
He is the author of more than 30 research articles and of two textbooks: the first book is on operations management and his new book is on operations strategy. In addition to his regular teaching duties in Evanston and Chicago, Dr. Van Mieghem also
has taught executives in Austria, Belgium, Canada, Germany, and Thailand. Jan received his Ph.D. from the Graduate School of Business at Stanford University in 1995. He also holds a MS in EE (electrical engineering) from Stanford and a MS in EE from the University of Leuven in Belgium. Born in Belgium, he currently lives in Evanston, Illinois, with his wife Shannon and four kids (all between 3 and 6 years old).