Investments in new manufacturing systems are vital for the well-being of the company as they are means of achieving the objectives and goals the company is aiming at. Both long-term corporate success and short-term profitability are based on the company’s investments. Managerial decision making is, however, becoming more difficult due to worldwide competition and the rapidly changing and increasingly complex environment. A growing concern is that the selection of investment alternatives (manufacturing systems) that in the long run enhance the company’s competitive position or other strategic goals cannot any longer be based on conventional financial analysis only. These financial analysis techniques do not provide the decision maker with sufficient support because they do not integrate the investments into the company’s strategy sufficiently. Furthermore, the conventional investment planning based on these techniques does not fully respond to the way the investment decisions are actually made. The shortages of the conventional justification techniques include insufficient benefit analysis, a short-term focus, and misassessment of the appropriate discount rate. Therefore, conventional financial analysis techniques alone are not appropriate to justify more strategic investments, but a strategy-oriented investment justification is needed as well.
Key Terms in this Chapter
Multiattribute: It is a quality or characteristic of a system with a number of dimensions and subdimensions.
Simulation: Simulation is the imitation of certain key characteristics or behaviors of real systems.
Decision Making: Decision making is a cognitive process of choosing between alternative courses of action.
Manufacturing System: This is the arrangement and operation of production resources (machines, tools, material, people, and information) to produce planned products or services.