Justifying Investments in Flexible Manufacturing Technology: Adding Strategic Analysis to Capital Budgeting Under Uncertainty

Justifying new manufacturing technology is usually very difficult since the most important benefits are often strategic and difficult to quantify. Traditional capital budgeting procedures that rely on return measures based on direct cost savings and incremental future cash flows do not normally capture the strategic benefits of higher quality, faster responses to wider ranges of customer needs, and the options for future growth made available by flexible manufacturing technology. Adding to these limitations is the difficulty of using traditional cost accounting systems to generate the information necessary for justifying new manufacturing investments. This paper reviews these problems and recommends procedures useful for assessing investments in flexible manufacturing technology.

[1]  Clifford W. Smith,et al.  Option pricing: A review , 1976 .

[2]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[3]  René M. Stulz,et al.  Options on the minimum or the maximum of two risky assets : Analysis and applications , 1982 .

[4]  George K. Hutchinson,et al.  The economic value of flexible automation , 1982 .

[5]  E. Bailey,et al.  Market Structure and Multiproduct Industries , 1982 .

[6]  Stewart C. Myers,et al.  Finance Theory and Financial Strategy , 1984 .

[7]  M. C. Burstein,et al.  Economic evaluation for the optimal introduction of flexible manufacturing technology under rivalry , 1985 .

[8]  N. Kulatilaka,et al.  Capital budgeting and optimal timing of investments in flexible manufacturing systems , 1985 .

[9]  G. Michael,et al.  Economic justification of modern computer-based factory automation equipment: A status report , 1985 .

[10]  R. Jaikumar Postindustrial manufacturing , 1986 .

[11]  James E. Hodder Evaluation of Manufacturing Investments: A Comparison of U.S. and Japanese Practices , 1986 .

[12]  Jack R. Mkrkdtth,et al.  Justification techniques for advanced manufacturing technologies , 1986 .

[13]  J. Meredith Justifying new manufacturing technology , 1986 .

[14]  M. Machina Choice under Uncertainty: Problems Solved and Unsolved , 1987 .

[15]  Thomas H. Johnson,et al.  Relevance Lost: The Rise and Fall of Management Accounting , 1987 .

[16]  L. Trigeorgis,et al.  Valuing managerial flexibility , 1987 .

[17]  Charles H. Fine,et al.  Research and Models for Automated Manufacturing , 1987 .

[18]  John Roberts Advances in Economic Theory: Battles for market share: incomplete information, aggressive strategic pricing, and competitive dynamics , 1987 .

[19]  James W. Dean,et al.  Deciding to Innovate: How Firms Justify Advanced Technology , 1987 .

[20]  Raj Aggarwal,et al.  Project Exit Value as a Measure of Flexibility and Risk Exposure , 1989 .

[21]  B. Carlsson Flexibility and the theory of the firm , 1989 .

[22]  Wl Currie,et al.  The art of justifying new technology to top management , 1989 .

[23]  W. Arthur Positive feedbacks in the economy , 1990 .

[24]  Charles H. Falkner,et al.  Multi-Attribute Decision Models in the Justification of CIM Systems , 1990 .

[25]  Hamid Noori,et al.  Readings and Cases in the Management of New Technology: An Operations Perspective , 1990 .

[26]  Hamid Noori,et al.  Managing the Dynamics of New Technology: Issues in Manufacturing Management , 1990 .

[27]  J. Meredith,et al.  Justifying new manufacturing systems: a managerial approach , 1990 .

[28]  Werner Bruggeman,et al.  Justification of Strategic Investments in Flexible Manufacturing Technology , 1992 .

[29]  Wickham Skinner,et al.  The Productivity Paradox , 1986, The Productivity-Inclusiveness Nexus.