Capacity management in order-driven production networks--A flexibility-oriented approach to determine the size of a network capacity pool

Assuming heterarchical production networks, capacity management is faced with uncertainties of both network orders and network capacity. In order to deal with these uncertainties we propose a flexible approach that combines capacity-oriented pricing with two modes of providing network capacity: capacity on demand and network capacity pool. Flexibility of this approach arises from additional degrees of freedom for matching capacity supply and demand. The central problem of sizing the network capacity pool is solved iteratively by a decentralised planning process applying the top-down/bottom-up principle. In this paper we present the underlying formal models of the corporate level and the network level as well as the coordination procedure. In order to illustrate the approach, we provide a continued numerical example.