Real options approach for a mixed-model assembly line sequencing problem

Mixed-model assembly lines are widely used in manufacturing. This can be attributed to increased product variety and potential just-in-time (JIT) benefits obtained by applying mixed-model assembly lines. Because of market demand volatility, the flexibility of such a line is increasingly becoming more important and, consequently, determining an accurate sequence is becoming more complex. In this paper, first, we use the real options approach to evaluate one specific type of flexibility, i.e., product-mix flexibility. This methodology is applied to determine the products' quantity that must be satisfied by the mixed-model assembly line. Then, in order to determine a desired sequence, we consider three objectives simultaneously: (1) total utility work cost, (2) total production rate variation cost, and (3) total set-up cost. A nonlinear zero-one model is developed for the problem whose objective function is a weighted sum of the above-mentioned objectives. Moreover, two efficient metaheuristics, i.e., a genetic algorithm (GA) and a memetic algorithm (MA), are proposed. These solution methods are compared with the optimal solution method using Lingo 6 software over a set of randomly generated test problems. The computational results reveal that the proposed memetic algorithm performs better than the proposed genetic algorithm.