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 an appropriate technology 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. It is shown that this information benefit will never outweigh the delay cost, leading to a set of plausible conditions under which the information processing time will never exceed the production cycle time in an optimal design. Conditions are also supplied 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 design and information transfer incentives to the information processing and production functions.