The research for flexible product family manufacturing based on real options

Abstract

Purpose: The goal of this paper is to find the best production strategy for product mix, which means the largest value of the options. And finally, give a case and find the solution of the optimal production strategy for product mix.

Design/methodology/approach: This article, based on the production with characteristics of a call option and 0-1 integer programming model, build new-products mix strategy, and through case demonstrate that traditional method underestimates the value of the products mix.

Finding: According to market being volatility and uncertainty and the production can being delayed, firms can flexibly arrange the best time for products to manufacture. Use real options theory to analyze product decision and the best production timing decision. Find the total options value is higher than the traditional methods.

Research limitations/implications: We are not applied to real option pricing theory in modular flexible production system. We just applied real option pricing theory to the product platform. The basic model needs to improve. While the thinking of this paper provides some research ideas for flexible production systems based on real option in further research.

Practical Implications: The introduction of the real option make the company can achieve dynamic planning and flexible management for production of products mix and get the better benefit.

Originality/value: The central contribution of this paper is to introduce the option mechanism in the production timing for the product mix.