The Financial Evaluation and Economic Application of Advanced Manufacturing Technology

Abstract

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.

Get full access to this article

View all access options for this article.

References

Primrose

P. L.

Leonard

Optimising the financial advantages of using CNC machine tools by use of an integrated suite of programs

Proc. Instn Mech. Engrs, Part B, 1984, 198B(10), 147–151.

Primrose

P. L.

Leonard

Evaluating the ‘intangible’ benefits of FMS by use of discounted cash flow algorithms within a comprehensive computer program

Proc. Instn Mech. Engrs, Part B, 1985, 199 (B1), 23–28.

Primrose

P.L.

Leonard

The development and application of a computer based appraisal technique for the structural evaluation of machine tool purchase

Proc. Instn Mech. Engrs, Part B, 1984, 198B(10), 141–146.

Primrose

P. L.

Leonard

The use of a conceptual model to evaluate financially FMS projects

Proc. Instn Mech. Engrs, Part B, 1985, 199B (B1), 15–21.

IVAN: investment analysis computer program. Sales literature (Organisation Development Limited, Altrincham, Cheshire).

Primrose

P. L.

Leonard

Incorporating the ‘intangible’ benefits of robots within a comprehensive financial evaluation. IMechE conference, UK Robotics Research 1984, London, Dec. 1984, pp 115–120. (Mechanical Engineering Publications, London).

Primrose

P. L.

Leonard

Conditions under which flexible manufacturing is financially viable. Proc. 3rd Int. Conf. on Flexible Manufacturing Systems, Sept. 1984, pp 121–132 (IFS Conferences).

Primrose

P. L.

Creamer

G. D.

Leonard

Identifying and quantifying the ‘company-wide’ benefits of CAD within the structure of a comprehensive investment program

Computer Aided Design, Jan/Feb. 1985, 17(1), 3–8.

Primrose

P. L.

Hoey

Leonard

A methodology for incorporating the ‘company-wide’ benefits of MRP within a discounted cash flow investment analysis

Proc. Instn Mech. Engrs, Part B, 1985, 199 (B4), 235–240.

10.

Engleberger

J. R.

Robotics in practice, 1980 (American Management Association, New York).

11.

Ayres

R. V.

Miller

S. M.

Robotics applications and social implications, 1983, (Bollinger Publishing Company, Springfield, Illinois, USA).

12.

Primrose

P. L.

Leonard

The financial evaluation of flexible manufacturing modules. Proc. 1st Int. Machine Tool Conf, Birmingham, June 1984, pp 61–72 (IFS Conferences).

13.

Primrose

P. L.

Leonard

A methodology for identifying major areas of research in advanced manufacturing systems by means of financial analysis. Proc. 25th Int. Machine Tool Design and Research Conf., University of Birmingham, April 1985.

14.

Senker

Some problems in justifying CAD/CAM. Proc. 2nd European Conference on Automated Manufacture, pp 59–66, 1983 (IFS Conferences).

15.

Bryce

A. G.

CADCAM Integration. Chart. Mech. Engr, Jan. 1985, 25–28.

16.

Boxx

D. B.

How to convince management to invest in MRP

Production and Inventory Management, 1978, 20(2), 49–62.

17.

Hall

P. E.

Holden

G. K.

Computerguide 9: production control, 1973, (National Computing Centre, Manchester).