Simulation v. Analytical Models for the Economic Evaluation of Flexible Manufacturing Systems: An Option-Based Approach

One of the main obstacles to a wider diffusion of flexible manufacturing systems (FMSs) is their economic justification (Kalkunte et al., 1986; Gold, 1988). Traditionally, investments in automation have been justified by reduction in direct labour costs. The same justification, however, applies only to some extent as far as FMS is concerned. Other advantages, such as better quality standards, improved timeliness in responding to market demands and, above all, flexibility, are the critical aspects involved in the decision to introduce an FMS. However, these aspects appear somehow intangible, and difficult to include in a financial analysis.