Fall 2008 Seminar Series

DATE: October 2, 2008
LOCATION: E40-496
TIME: 4:15pm
Reception immediately following in the ORC ConferenceRoom, E40-106

SPEAKER:
Achal Bassamboo

TITLE
A Little Flexibility is All You Need: Optimality of Tailored Chaining and Pairing

ABSTRACT
Deciding on the appropriate type and amount of flexibility is a classic management problem. The literature has shown that the choice between specialization and flexibility is not an “all-or-nothing” proposition. It is typically better to use a tailored portfolio of dedicated and flexible resources and a little flexibility goes a long way. Let “level-k” flexibility refer to a resource’s ability to process k-different types of products. Simulations have shown that using only level-2 flexible resources in a special configuration called chaining achieves almost all the benefits of total flexibility.

 

In this paper, we introduce “tailored pairing” that merges and extends the concepts of chaining and tailoring in dynamic processing systems. We optimize the type and amount of flexibility using a Brownian approximation that is asymptotically correct. We show analytically that for symmetric systems and most practical flexibility cost structures the optimal flexibility configuration invests a lot in dedicated resources, a little in only bi-level flexibility, but nothing in level-k > 2 flexibility, let alone full flexibility. Dedicated resources provide base capacity to serve the majority of the demand while only a small amount of bi-level flexibility is sufficient to serve the variable demand: dedicated capacity is sized roughly proportional to demand while flexible capacity is roughly proportional to the square root of demand and to its coefficient of variation. Our main result can be restated as saying that tailored pairing is optimal for symmetric systems. We investigate the accuracy and robustness of our results in asymmetric systems. It is obvious that the tailored flexible configuration will mirror the asymmetry in the demand. Yet our main result remains: even asymmetric systems do not seem to need k > 2-level flexible resources and complete resource pooling is suboptimal. (Joint work with Ramandeep S. Randhawa and Jan A. Van Mieghem)