Avoiding the capacity cost trap: Three means of smoothing under cyclical production planning

Developing an analytical model based on industrial evidence, we derive capacity and inventory costs under the staggered OUT policy, showing that for this policy there is an optimal order cycle possibly greater than unity. To improve on this solution, we consider three approaches to smoothing: either levelling within the cycle, deferring excess production or idling to future cycles via a proportional OUT policy, or increasing the length of the cycle. By deriving exact cost expressions we compare these approaches, finding that smoothing by employing the proportional OUT policy is sufficient to avoid the capacity cost trap.