“Let’s get flexible” - Analysis of capacity and flexibility investment decision in the context of Industry 4.0

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“Industry 4.0” accelerates the trend of mass customization through exponential technologies. Previous literature has suggested that the implementation of mass customization can increase company’s competitiveness, and the success of mass customization is achieved by flexible manufacturing system with respect to customers’ individual needs. However, installation of flexible manufacturing system1 is highly capital intensive and time-consuming. The difficulty is great for manufacturing decision-maker to design their production system in a way to absorb high level of product variety without compromising productivity and profit gains.Based on this problem, this paper develops a quantitative system dynamics model for studying the impacts of flexible capacity investment strategies on corporate performance in a broad systems context. The mentioned corporate performance is represented by three main dimensions: profitability, competitive market positions, production and employment stability. Capacity expansion investment decisions involve determining the amount of capital equipment to acquire and their types. In order to address this decision systemically by identifying the main factors affecting such a capacity expansion decision. The formulation of the research begins with reproducing Lyneis’s research to study the interdependencies between capital acquisition and corporate performance. The focus of this research and a review of existing literature related to flexible capacity investment decisions are then discussed. Next an updated corporate model that quantifies these interdependencies is established. The paper ends with policy guidelines that demonstrates the usefulness of the model and highlights the importance of using a systems approach.The main contributions of this research lie in threefold: First, a SD model that can capture the dynamic of flexible capacity investment process is developed; Second, with the aid of the model, the key characteristics of flexible capacity investment problems are identified; Third, the recommendations of policy strategies on increasing manufacturing flexibility to hedge against market uncertainty in “Industry 4.0”, as well as improving corporate performance, are presented.
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