Production process changes: A dynamic programming approach to manage effective capacity and experience

The introduction of process changes is often used by management to invest in production competencies. However, implementing process changes causes disturbances in production learning. This work describes a process change strategy to increase the effective capacity of a production system when unit costs are subject to a learning curve. It is found that the optimal process change level is decreasing in the effective capacity level and increasing in the accumulated knowledge level and production learning rate. Conditions are provided under which the optimal process change level is larger/smaller than the myopic process change level.