Production Development and Management


Alexander Werthén
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Fredrik Olsson
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Overcoming the challenges from an unpredictable market requires industry to adopt aspects of changeability. However, without economic motivation practitioners will be reluctant to adopt to a more changeable manufacturing system. But what is the true value of changeability?

The purpose of this study was to develop an investment model which can be applied during the design of a manufacturing system, that considers Dedicated-, Flexible-, and Reconfigurable Manufacturing Systems. With the aim of the developed model is to give decision makers monetary basis added from changeability.

To efficiently describe the benefits of a changeable manufacturing system, literature suggests using a real option approach. Industry on the other hand has perceived this method of being too complex, in comparison with the currently used Net Present Value (NPV) model. This approach has been proved inadequate to describe the benefits of a changeable system due to its assumption of one certain outcome and not considering future incremental investment. This contradicts the more complex and uncertain nature of reality. By combining these two approaches, authors manage to create a simple model, molded from requirements of both industry and academia.

The result of the study is a model that supplements traditional NPV evaluation with a real options approach. The study indicates that it is possible to present the monetary value of added flexibility from changeable manufacturing systems in a simplistic way, increasing applicability of the model in industry.