Control of Effective Productive Capacity with a Level of Total Production Inventory in a Business Fluctuation Period

Abstract

This paper analyzes a relation between level of total production inventory and effective production capacity in a production process, and proposes a method of controlling effective production capacity in a business fluctuations period. They are based on the property: “effective production capacity = capacity of production facilities - total changeover loss", where changeover loss is a decreasing function of level of total production inventory.
Although the effective production capacity can be controlled by an increase or decrease of production facilities, its cost is too expensive. It must be done only in the case that an increase or decrease in demand is confirmed. Therefore, the effective production capacity must be controlled by the level of total inventory.
In a business recovery or recession period, two kinds of production time have to be controlled. The first the production-time control for the increase or decrease in demand, and the second is that for an increase or decrease in the level of total inventory. Even if an increasing or decreasing rate in demand is constant, the value of the total control time decreases at first and then increases exponentially. This is the reason why inventory control is difficult in a business fluctuations period.