FLEXIBILITY AND MARKETING MANUFACTURING COORDINATION

This paper explores some cross-functional implications of the flexibility of manufacturing processes. Two complementary problems are formulated: the marketing choice of the breadth of the product line, and the manufacturing choice of the flexibility of the production process. Their analysis leads to the joint problem of marketing/manufacturing coordination. Operating costs provide the key linkage between the two functional decisions: changeover costs and inventory costs critically depend on both product variety and process flexibility. One of the key results is that - due to non-convexities - the decentralized solution of the above two problems typically yields a globally suboptimal solution. The analysis sheds light on recent developments in manufacturing such as flexible manufacturing systems and just-in-time production.