Alternate method for the justification of advanced manufacturing technologies

Abstract

When evaluating investments in new manufacturing technologies, well-managed companies simultaneously do a strategic and an economic analysis. A manufacturing strategy map is presented in this paper to simplify the strategic analysis. The tools used in the economic analysis—discounted cash flows, expected net present value, and stochastic net present value—are reviewed, and a new tool called the state-price net present value is presented. The advantages of the new tool include: it is easy to understand and use, no estimate of the discount rate is needed, and the data and computational requirements are modest. Its limitations are also discussed, and an illustrative example is presented.