Stochastic optimal capacity management in reconfigurable manufacturing systems

This paper presents an optimal policy, based on Markov decision theory for the capacity management problem in a firm facing stochastic market demand. The firm implements a reconfigurable manufacturing system and faces a delay between the times capacity changes are ordered and the times they are delivered. Optimal policies are presented as optimal boundaries representing the optimal capacity expansion and reduction levels. To increase the robustness of the optimal policy to unexpected events, the concept of feedback control is applied to address the capacity management problem. It is shown that feedback provides sub-optimal solutions to the capacity management problem which are more robust under unexpected disturbances in market demand and unexpected events.