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European Journal of Operational Research, Volume 231, Issue 1, 2013, Pages 182-189.
Rui Fernandes, Borges Gouveia, Carlos Pinho.
Department of Economics, Management and Industrial Engineering, University of Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal.
Abstract
Firms that experience uncertainty in demand as well as challenging service levels face, among other things, the problem of managing employee shift numbers. Decisions regarding shift numbers often involve significant expansions or reductions in capacity, in response to changes in demand. In this paper, we quantify the impact of treating shifts in workforce expansion as investments, while considering required service level improvements. The decision to increase shifts, whether by employing temporary workers or hiring permanent employees, is one that involves significant risks. Traditional theories typically consider reversible investments, and thus do not capture the idiosyncrasies involved in shift management, in which costs are not fully reversible. In our study, by using real options theory, we quantify managers’ ability to consider this irreversibility, aiming to enable them to make shift decisions under conditions of uncertainty with the maximum level of flexibility. Our model aims to help managers make more accurate decisions with regard to shift expansion under service level targets, and to defer commitment until future uncertainties can be at least partially resolved. Overall, our investigation contributes to studies on the time required to introduce labour shift changes, while keeping the value of service level improvements in mind
Additional Information
In the paper a model is presented to support changes in workforce, considering a complex formulation, covering most of the actual workforce planning issues. The novelty concerns to the incorporation of demand uncertainty and service level.
The paper is about modelling the timing decision in adding labour shifts to respond to stochastic demand. A numerical experiment is provided to illustrate the proposed method. This study deals with the decision on creating or not a new work shift, which is a relevant issue to the management of production systems. It considers that the introduction of a new work shift implies an investment that is not fully reversible and real options theory is used to deduct the optimal time to implement the decision. It explores the link between the service level target and the variable decision for an additional shift. For the generality of the model are used two stochastic processes to represent the demand behaviour. Additionally many other parameters used for planning purposes are incorporated in the model, such as overtime, but also with strategic concerns regarding the workforce composition. The service level improvement value concept is considered a flexibility measure to quantify the workforce shift changes.
