The Financial Evaluation and Economic Application of Advanced Manufacturing Technology

The traditional approaches to investment appraisal are examined and it is shown that these exhibit severe limitations when applied to advanced manufacturing technology (AMT). In particular, the financial advantages of AMT are usually understated, with the result that companies fail to invest in highly viable projects. The paper then demonstrates how investment appraisal can be correctly performed by use of an integrated suite of programs, and that when the company-wide benefits of AMT are embraced within the DCF evaluation, AMT emerges as being cost effective. The advantages of using the programs are illustrated by examples from each facet of AMT (for example, robotics, CNC, FMS, CAD/CAM and MRP) with conclusions being derived showing how the traditional objective of reductions in direct costs changes when the investment is viewed company-wide. Finally, it is shown how this change in perspective, in turn, induces a re-appraisal of the direction that AMT development should take if its full potential is to be realized.