Response Time Design in Integrated Order Processing/ Production Systems

We consider a single-product firm in which arriving orders are processed by an information processing system before being downloaded to the production system. The design problem is to choose the appropriate processing and control technologies for the information (production) systems, the decision variables being the speed with which these systems can process orders (products). Rapid systems are assumed to be more costly to operate than slower systems, and it is assumed that products can be inventoried, but information processing cannot. Longer information processing times incur greater delay costs, but provide benefits in the form of more advanced warning of upcoming demand to the production function. This paper is a first attempt to model this tradeoff. We describe a plausible set of conditions under which the information processing time will never exceed the production lead time in an optimal design. Conditions are also described that guarantee that the greatest marginal benefit, starting from a suboptimal system design, will be to invest in time reductions in the information processing, rather than the production, system. Performance measures are suggested that provide the appropriate incentives to integrate the information processing and production functions.