Product mix strategy and manufacturing flexibility

Abstract The manufacturing industry is facing a turbulent and constantly changing environment, with growing complexity and high levels of customisation. Any investment solution should address these problems for a dynamic market and within limited budget boundaries, so that companies try to remain competitive. The authors propose a real options model to support firms making important investment decisions, specifically decisions associated with the acquisition of new equipment aimed at allowing firms to increase their manufacturing flexibility for the production of both standard and customized products. This paper is partially based on a real operating experience related to visual finishing technology features in an industrial company that conforms to the definitions of the product mix. The authors’ motivation for this work is driven by firms’ desire to satisfy specific customer needs, and to respond to them quickly under uncertain demand. Our goal, using theories from finance, production management, and product offering management, is to conclude that there is a relevant difference between the evaluation of the technology that is to be chosen, and the potential value due to product mix adaptations that are able to provide the maximum return from investment. We address problems related to standard and customized production systems, and the decision to invest in a set of resources that will enable this choice.

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