William G. Sullivan

EQUIPMENT REPLACEMENT DECISIONS AND LEAN MANUFACTURING

Traditional manufacturing systems are built on the principle of economies of scale. Here, the large fixed costs of production are depreciation-intensive because of huge capital investments made in high-volume operations. These fixed costs are spread over large production batch sizes in an effort to minimize the total unit costs of owning and operating the manufacturing system. As an alternative to ‘‘batch-and-queue,’’ high-volume, and inflexible operations, the principles of the Toyota Production System (TPS) and lean manufacturing have been widely adopted in recent years in the US [1–4]. In this paper, we illustrate an equipment replacement decision problem within the context of lean manufacturing implementation. In particular, we demonstrate how the value stream mapping (VSM) suite of tools can be used to map the current state of a production line and design a desired future state. Further, we provide a roadmap for how VSM can provide necessary information for analysis of equipment replacement decision problems encountered in lean manufacturing implementation. r 2002 Elsevier Science Ltd. All rights reserved.

Principles of concurrent engineering

The world-wide competitive economy is forcing us to utilize fully the best equipment and techniques available with efficient control of organizational structure to produce high quality, well-designed products at lower prices and in less time. Increasing awareness is being directed to the product design phase, because the more advanced CIM technologies are of little consequence unless the product design lends itself to the overall system utilizing all available and relevant technologies. For instance, the following statements represent the significance of product design.

A New Paradigm for Engineering Economy

ABSTRACT This paper discusses a fundamental change that appears to be occurring in the practical and theoretical aspects of engineering economy. Recent emphasis on the engineers role in strategic and design-related decision processes has created a very real need for a change in focus in engineering economy technique and methodology. Several areas of research opportunity that arise because of the paradigm shift are also identified herein.

A Synthesis of Methods for Evaluating Interrelated Investment Projects

Strategic investments are frequently placed in increments through time, while simultaneously impacting other processes. These sources of dependency cause the economic evaluation of these projects to be a complex affair. There are a number of methods that allow the analyst to evaluate these types of investments. This paper identifies, explains, and provides practical examples for seven different evaluation methods. For each of these approaches we identify strengths, weaknesses, and best application. We conclude by suggesting that an approach that combines simulation with activity-based costing for tactical evaluation and expert systems for strategic evaluation may have the most future promise.

Multi-Attribute Evaluation of Local Area Network Topologies

This paper applies a multi-attribute evaluation model to the choice between local area network (LAN) topologies in an office automation project. A computerized decision support system, JustLAN, has been developed to facilitate sensitivity studies. It incorporates the following features: (1) a group-participative process for data acquisition, (2) the development of ratio-scaled importance weights for the attributes, (3) detailed cost estimation worksheets for the determination of life-cycle costs for feasible alternatives, (4) a graphical assessment of tradeoffs between monetary and nonmonetary considerations, and (5) the capability to conduct on-line sensitivity analyses to test the “robustness” of the recommended alternative to estimation errors. In a sample application of the procedure, involving a LAN selection problem in a government office building, an inferior alternative would have been selected if results of traditional present worth analysis had been followed. Only through the use of multi-attrib...

A Semi-Variance Model for Incorporating Risk into Capital Investment Analysis

ABSTRACT Most traditional approaches to capital expenditure analysis have been partially successful in explicitly accounting for risk. A utilitarian model for risk treatment is described in this paper. Specifically, we address two major aspects of the utilitarian approach: (1) the mathematical legitimacy of the underlying utility function with respect to its domain of economic significance and (2) the way “Expectancy-Variance” and “Expectancy-Semivariance” compare as risk/return trade-off criteria. In particular, we have shown how commonly used quadratic utility functions present some theoretical and practical inconveniences from an economic standpoint. Then, a hybrid utility function is introduced as a more legitimate and often more realistic model where semi-variance, rather than variance, is used as a measure of the investment riskiness.

DETERMINATION OF ECONOMIC VALUE ADDED FOR A PROPOSED INVESTMENT IN NEW MANUFACTURING

ABSTRACT This paper discusses a measure for estimating the wealth creation potential of capital investments in manufacturing. The measure, called “Economic Value Added,” has recently become popular in the United States and can be derived from an after-tax analysis of cash flows generated by a capital investment. A proposed investment in manufacturing capacity is analyzed to illustrate the after-tax cash flow calculations required to determine its EVA potential.

CONSIDERING EXCHANGE RATE MOVEMENTS IN ECONOMIC EVALUATION OF FOREIGN DIRECT INVESTMENTS

ABSTRACT One of the major risks encountered in economic evaluation of foreign direct investment is the changes in future exchange rates that may affect the accuracy of the estimated economic worm of the investment. The objective of this article is to present a model for reducing the uncertainty associated with changes in foreign exchange rates when conducting economic evaluations of foreign direct investments. The model uses the Purchasing Power Parity Theorem and weighted averages for creating a procedural approach in which future changes in exchange rates are considered and included in the calculation of an overall profitability measure.

A virtual classroom experiment for teaching the economic principles of engineering design

The objective of this project was to conduct and report on experiments to determine whether industrial case studies, web-based course materials, and communication enhanced by the Internet can improve the proficiency of student learning in engineering economy.

Multivariate analysis of student performance in large engineering economy classes

Based on multivariate data collected over three years, linear regression equations are developed and used to assess student learning in large sections of engineering economy taught at Virginia Tech. In each year (1993, 1994 and 1995), more than 350 students in the fall semester voluntarily participated in this research. This paper presents the principal findings of the study and demonstrates the use of multivariate linear regression for evaluating student performance (learning) in engineering economy.