Process Flexibility in Supply Chains

Process flexibility, whereby a production facility can produce multiple products, is a critical design consideration in multiproduct supply chains facing uncertain demand. The challenge is to determine a cost-effective flexibility configuration that is able to meet the demand with high likelihood. In this paper, we present a framework for analyzing the benefits from flexibility in multistage supply chains. We find two phenomena, stage-spanning bottlenecks and floating bottlenecks, neither of which are present in single-stage supply chains, which reduce the effectiveness of a flexibility configuration. We develop a flexibility measure g and show that increasing this measure results in greater protection from these supply-chain inefficiencies. We also identify flexibility guidelines that perform very well for multistage supply chains. These guidelines employ and adapt the single-stage chaining strategy of Jordan and Graves (1995) to multistage supply chains.