Justifying Investment in Advanced Manufacturing Technology
Towards the end of 1983, the Advisory Council for Applied Research and Development (ACARD) published a report giving the findings of a working group which had been set up to study the factors which inhibited or supported the introduction of advanced manuf
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Produced by:
THE INSTITUTION OF PRODUCTION ENGINEERS and jointly published by:
THE CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS THE INSTITUTION OF PRODUCTION ENGINEERS
Springer Science+Business Media, LLC
First published 1987 ISBN 978-1-4757-5626-5 (eBook) ISBN 978-1-85091-464-8 DOI 10.1007/978-1-4757-5626-5 Copyright © Springer Science+Business Media New York Originally published by CIMA and I Prod E 1987.
British Library Cataloguing in Publication Data Justifying investment in advanced manufacturing technology. I. Technological innovations - Great Britain - France 2. Great Britain Manufactures l. Institution of Production Engineers 338.4'367'0941 HC260.T4
Contents Page Foreword INTRODUCTION
2
THE NEED FOR A STRATEGIC APPROACH
5
3
FINANCIAL CONSIDERATIONS
9
3.1 Introduction
9
3.2 The Nature of Costs and Benefits
9
3.3 Cost Savings
12
3.4 Working Capital Reductions
14
3.5 Market Factors
15
3.6 Other Considerations
17
3.7· Conclusion
18
4
INVESTMENT APPRAISAL TECHNIQUES
19
4.1 Introduction
19
4.2 The Assessment of Investment Proposals
20
4.3 An Example of AMT Appraisal
21
4.4 The Use of Sensitivity Analysis
28
4.5 Quantifying the Intangibles
32
4.6 Summary
34
4.7 Presentation of Investment Proposals
35
5
SOURCES OF FINANCE
37
5.1 General Points
37
5.2 Sources of Finance
37
5.3 Government Grants
40
6
CASE STUDIES
43
6.1 Background
43
6.2 Summary of Benefits Obtained
46
6.3 Summary of Justification Methods Used
46
7
THE WAY FORWARD
49
Appendices
51
Glossary of Terms
67
Foreword Towards the end of 1983, the Advisory Council for Applied Research and Development (ACARD) published a report giving the findings of a working group which had been set up to study the factors which inhibited or supported the introduction of advanced manufacturing technology (AMT) in engineering manufacture. Prominent amongst their findings was that, up to that time, 'appraisal of investment in AMT on a short-term financial basis was not entirely adequate' and that 'the conventional approach to financial appraisal techniques, directed towards an early return on capital invested, may be inappropriate'. Today, over three years later, advanced manufacturing technology is more widely recognised and is providing a proven solution to survival and growth for manufacturers. However, many medium- and small-size companies are still finding great difficulty in the evaluation and justification of investment in this vital area. The Institution of Production Engineers therefore set up a special joint working party with The Chartered Institute of Management Accountants to follow up the ACARD report, with the objective of examining the whole area of the justification of investment in advanced manufacturing technology. This book has been written by the working party in an endeavour to assist manufacturers who believe that they should develop AMT in their own firms. We have particularly in mind the medium and smaller companies, with up to, say, 500 employees. It is intended for managers, en
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