Economic and strategic justification of AMT inferences from industrial practices

production economics Int. J. Production Economics 49 (1997) 65-75

Economic and strategic justification of AMT Inferences from industrial practices Michael H. Small”~*, Injazz J. Chenb ‘Department of Management and Marketing, East Tennessee State University Johnson City, TN 37614-0625, USA bDepartment of Operations Management and Business Statistics, College of Business Administration, Cleveland State Universify Cleveland, OH 44115. USA Accepted 1 November 1996

Abstract Organizations vary greatly in their approaches and success in justifying investment in advanced manufacturing technology (AMT). This study investigates usage of various justification approaches by US manufacturers and examines the impact of such practices on the ultimate performance of AMT projects. Responses from a survey mailed to 584 plants in the US were used to test four propositions concerning AMT justification practices. We first discover that the majority of plants are not utilizing the more sophisticated justification techniques that are being touted by many researchers. Significantly, firms using hybrid justification strategies which include both economic and strategic justification approaches were found to attain higher levels of success from their AMT projects than plants that used only one method. However, once a plant used a hybrid justification method, preference for either strategic or economic criteria had no impact on the level of success of the project. Not surprisingly, plants using the more complex manufacturing technologies were more likely to have multiple functional departments involved in the justification process. Finally, the composition of inter-departmental teams for planning, justification and installation activities have an impact on the success of the AMT project. Keywords:

Economic and strategic justification;

Advanced manufacturing

1. Introduction Advanced manufacturing technology (AMT) represents a wide variety of modern technologies devoted to improving the competitiveness of manufacturing firms. While some firms that adopt these technologies report reaping considerable benefits, such as improvements in product quality and the *Corresponding author. Tel. 423-439-5593; fax: 423-439-8297; e-mail: [email protected].

technology; Technology management

ability to respond more quickly to changing customer needs, others have not been as successful. Hence, investment in AMT remains a promising but potentially risky venture. The development and use of appropriate economic and strategic justification approaches are crucial to ensuring that AMT projects are evaluated for all the strategic and operational benefits and costs that are associated with their acquisition and operation. One of the major considerations in economic justification of an AMT project is the quantification

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M.H. Small, I.J. Chenllnt. J. Production Economics 49 (1997) 65-75

of the costs and benefits. While the costs (hardware, software, planning, training, operations, etc.) are generally easily quantifiable, some of the benefits are very difficult to quantify. In particular, major strategic benefits such as early entry to market, perceived market leadership, the ability to offer a continuous stream of customized products and improved flexibility, although extremely important for the growth and survival of the firm, are not readily convertible into cash values. One possible solution to the limitations of economic justification is provided by strategic justification which includes the analysis of competitive advantages, business objectives, etc. Proponents of strategic justification suggest that arguments based on comparison with competitors, the retention, attainment or perception of industry leadership, and expected future development in the industry may serve as alternative factors for management to approve AMT projects. While some firms continue to use either economic or strategic justification to assess AMT projects, there is a growing consensus that hybrid investment approaches which include both strategic and economic justification criteria are needed to evaluate these complex systems. This study examines these issues by surveying actual AMT investment justification and project evaluation practices at a cross section of manufacturing industries in the USA. The usage of various justification techniques, justification approaches and performance measurement criteria are identified. The relationship between these justification practices and the eventual success of AMT projects are also determined. Our results also reveal several findings on the participation of functional departments in effective AMT planning, justification and implementation.

2. Literature review 2.1. Justijkation techniques and approaches

Several techniques for investment justification of AMT have been advanced. Much of the literature that informs this topic can be grouped into three categories: (1) economic approach - involving the

classical financial justification techniques of payback period (PP), return-on-investment (ROI), internal rate of return (IRR), and net present value (NPV); (2) strategic approach -involving analysis of competitive advantage, business objectives, research and development objectives and technical importance; and (3) analytic approach - involving value analysis, portfolio analysis and risk analysis [l]. The economic approach has long been quite popular in investment justification. Fotsch [2] reported that the payback period (PP) technique was the most popular method of AMT appraisal in his study of the machine tool industry. It is interesting to note that while the Japanese also use the payback method most frequently, it serves more as a performance measurement tool than as a rigid financial criterion [3]. Return on investment (ROI) is the second most popular technique being used for AMT appraisal according to Fotsch [2]. However, Primrose [4] finds that since this method does not measure the economic value of the project, it has more disadvantages than the payback method. The discounted cash flow (DCF) techniques, net present value (NPV) and internal rate of return (IRR), are considered to be more effective than ROI and payback. Kaplan [S] argues that discounted cash flow approaches should always be applied for the justification of AMT but, for most firms, the discount rate should be lower than that required for conventional projects. Other researchers also support the use of DCF, but warn that there is a need to quantify the intangible benefits prior to the application of DCF in order to ensure a realistic appraisal [4,6,7]. Primrose [4] and Slagmulder and Bruggeman [S] believe that both NPV and IRR should be provided to allow better comparisons between projects. Cost/benefit analysis is also utilized for AMT project appraisals. Researchers have sought to identify costs and benefits of AMT through the use of case studies. These attempts aim to improve a firm’s ability to account for costs and benefits. For firms where the level of risk and uncertainty make up the most critical elements of the justification process, it is felt that risk sensitivity analysis is the most appropriate evaluation technique [4,9]. Hodder and Riggs [lo] suggest that there is also a need to vary the discount rate to reflect the

M.H. Small, LJ. Chen/Int. J. Production Economics 49 (1997) 65-75

change in the risk premium over the life of the project. Differences in risk related to different types of AMT must also be recognized. In comparing conventional projects to installation of robots, Jenkins and Raedels [ 1l] suggest that the flexibility and reprogramability of the robot merits a lower hurdle rate. A pervasive issue in justifying investment in AMT has been the inappropriateness of the economic approaches using only financial and accounting techniques (i.e. PP, NPV, ROI, IRR, etc.) in determining the intangible benefits of AMT such as improvements in flexibility, quality, time-tomarket, and other synergistic effects [12-141. The lack of faith in these techniques has led some researchers to advocate the justification of AMT using strategic arguments. Vrakking [ 151 suggests that projects might have to be justified on the basis of strategic arguments. Arguments based on comparison with competitors, the retention, attainment or perception of industry leadership, and expected future developments in the industry might serve as alternative factors for decision makers to approve AMT projects. Primrose [4] also argues that if strategic benefits are not quantified in the appraisal, they will appear as unexplained variances not attributable to the project in the accounting report. Support of this strategic view is also provided by Huang and Sakurai [3], who find that installation of AMT in Japanese firms is seen as a natural step that must be taken to retain manufacturing credibility as well as market share. Another approach is to regard the benefits from the new technology as essential and calculate the cost of meeting these with conventional technology [16]. However, there is a fear that such an approach might militate against useful conventional projects. To alleviate the problems inherent in using purely financial or purely strategic appraisal approaches, recent studies have promoted hybrid economic and strategic appraisal approaches. Kakati and Dhar [6] suggest that AMT projects should be evaluated using two basic criteria: first, through economic justification, and then a strategic assessment if the project fails to meet the investment criteria. An earlier variation of this approach calls for the use of discounted cash flow techniques, and

61

if the project is not feasible, the difference needed to make it feasible is determined [S]. The adoption decision is then based on the ability of the strategic benefits to make the project acceptable. There is also a school of thought that considers all AMT costs and benefits to be quantifiable [4]. These authors suggest that all projects can be appraised through a single evaluation technique which uses sensitivity analysis on the intangible benefits to compensate for the risk associated with evaluating these parameters. The move towards merging economic and strategic approaches has also seen the evolution of several weighted scoring models which allow management to assign weights to each tangible and intangible factor under consideration (see e.g. [8,17]). Scoring models possess multiple criteria capabilities, are simple to use, and can take management policies and the impact of flexibility into consideration [ 11. While these techniques represent the importance of each strategic factor by weights determined by management, these weights are generally not measured for consistency. Furthermore, the assumption of linear additivity of the weighted scores may not be accurate. Wabalickis [lS] proposes the use of more sophisticated scoring models such as the Analytic hierarchy process which can correct for managerial inconsistencies.

2.2. Developing performance

measures

A key issue in the auditing of AMT projects is determining the variables that should be used to measure the performance of the system. Most authors and manufacturers concentrate on readily quantifiable technical data such as reduced changeover times, increased output rate, etc. [ 19,201. Voss [Zl] indicates, however, that such data do not capture the business and market information that is required to judge the true effectiveness of the new systems. He finds that, while companies adopt the technologies to improve their level of competitiveness, the performance of the system is judged on technical grounds alone. Supporting this position, Vrakking [15] finds that since this essential information is lacking, it is hard to evaluate the full benefits of the new technologies.

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Another critical issue is the timing of the establishment of the performance measures and the performance benchmarks. It appears that the correct time for establishing these criteria is during the pre-installation stage, specifically during the economic and strategic justification of the technology [22,23]. It is at this time that all concerned departments can identify their expectations from the technology and seek to determine the time period within which these expectations should be met. This process should also provide an effective way to formulate the goals of the technology project as each group perceives them and to integrate these goals after discussing differences [23]. By adopting this approach, the plant will be better able to monitor progress during and after installation of the AMT and make adjustments to project goals and objectives. Furthermore, the performance of the AMT should be gauged by its impact on all concerned departments and not only on the department where it is installed [4].

3. Problem definition and research methodology 3. I. Problem dejinition The above review indicates that researchers have expended considerable time and effort in devising justification strategies that can contribute to more meaningful justification of AMT. However, it is clear that many of these contributions are of a conceptual and theoretical nature. As such, accounting purists and revisionists have been unable to reach agreement on the merits or demerits of the proposed strategies. This study attempts to bridge this gap by providing empirical evidence on the investment justification strategies that have been used effectively in actual AMT adoptions. It is hoped that this information can form the basis for the development of more action-based approaches to AMT investment justification in the future. This study utilizes data on the implementation of sixteen specific AMT. The advanced manufacturing technologies surveyed are broadly categorized using a format that closely approximates the classification scheme adopted by the U.S. Department of

Commerce in its 1988 Survey of Manufacturing Technology [24]. Our study classifies these 16 technologies into the following five technology types/groups: A. Design and engineering technologies (1) Computer-aided design (CAD) (2) Computer-aided manufacturing (CAM) (3) Computer-aided process planning (CAPP) B. Fabricating/machining and assembly technologies (4) Flexible manufacturing cells/systems (FMC/ FMS) (5) NC/CNC or DNC machines (6) Materials working lasers (MWL) (7) Pick-and-place robots (PPR) (8) Other robots (ROB) (9) Computer-integrated manufacturing (CIM) (10) Group technology (GT) C. Automated material handling technologies (11) Automatic storage and retrieval systems (ASRS) (12) Automated material handling systems (AMHS) D. Automated inspection and testing equipment (13) Automated inspection and testing equipment (AITE) E. Information technologies (14) Just-in-time (JIT) (15) Material requirements planning (MRP) (16) Manufacturing resources planning (MRP II)

3.2. Research methodology A cross-sectional survey methodology was employed for this study. Data on AMT justification techniques and approaches and performance evaluation activities was collected from selected manufacturing firms in the United States. According to the Standard Industrial Classification (SIC), the surveyed population consisted of firms whose major products were classified as SIC 35 (machinery), SIC 36 (electrical machinery) and SIC 37 (transportation equipment). The surveyed population represented plants having annual sales of over $5 million and annual gross sales-per-employee ratios of over $40000. The following three databases were used to develop sample files: Thomas Register of American Manufacturers 1992, Standard and

M.H. Small, I.J. Chenllnt.

J. Production

Poor’s Corporate Register 1992, and Ward’s Business Directory of US Private and Public Companies - 1990. Questionnaires were mailed to the plant managers of a randomly selected sample of 584 firms from the above three databases. Fifteen questionnaires were returned as undeliverable. A total of 125 responses were obtained from this survey. However, nine of these responses were unusable. Thus, a survey response rate of 22.0% was achieved, the useable response rate was 20.4%. It should be noted that this paper is part of a larger study that investigates the planning, justification, and implementation issues of AMT adoption. Thus, given the length of the questionnaire (over 240 items) and the specificity of the questions asked, the authors consider this response rate to be quite reasonable.

3.3. Questionnaire

design

The questionnaire solicited information on the usage of specific justification methods. Plants were also required to describe the justification techniques used and the constitution of justification teams for the evaluation of AMT projects. The questionnaire was validated (content validity) by several AMT consultants, plant managers at various firms that had installed AMT, and a few board members of the American Production and Inventory Control Society (APICS). All reviewers reacted favorably to the questionnaire. The final survey instrument incorporated minor changes that were made to remove a few ambiguities that were discovered during the validation process.

4. Survey results and hypothesis testing 4.1. General jindings on justi$cation

techniques

Plants were supplied with a list of seven of the most prevalent techniques for justification of AMT and asked to indicate their extent of usage of these techniques. Plants were found to be using various combinations of these appraisal techniques, with one plant using as many as six of the seven tech-

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Economics 49 (1997) 69-75

Table 1 Usage of justification techniques Justification techniques

Payback period (PP) Return on investment (ROI) Cost/benefit analysis Net present value (NPV) Internal rate of return (IRR) Risk analysis Weighted scoring models

Number of plants 61 46 43 31 19 6 3 116

Total

% of all plants 52.6 39.1 37.1 26.7 16.4 5.2 2.6 100

niques. As shown in Table 1, the results confirm earlier findings by Fotsch [2] that payback and return on investment (ROI) are the most popular techniques. For this sample, payback and ROI were used by 61 plants or 52.6% and 46 plants or 39.7% of the respondents, respectively. The third most popular technique was cost-benefit analysis which was being used by 37.1% of the respondents. The discounted cash-flow techniques of net present value (NPV) and internal rate of return (IRR) were being used by 26.7% and 16.4% of the respondents, respectively. The least used techniques were weighted scoring models with a usage rate of 2.6% and risk analysis at a rate of 5.2%. These results indicate that most plants are not using the more sophisticated techniques, such as risk analysis and weighted scoring models, which have been touted by academicians as means of improving justification decisions. The major impediment to the use of many of these methods appears to be their high level of complexity when compared to the traditional appraisal techniques. Some effort must be focused on making these techniques more accessible and understandable to potential adopters of AMT. As Primrose [4] indicates, complex justification techniques need to be simplified so that nonfinancial managers can use them routinely.

4.2. Hypothesis

testing

Respondents were asked to indicate whether their plants used economic or strategic criteria for

A4.H. Small, I.J. Chenllnt. J. Production Economics 49 (1997) 65-75

70

Table 2 Usage of justification approaches by plant size Plant size

Number of plants Small

% of Small

Med. Med.

% of Med.

Large Large

% of Large

0 5 14 0 0 0

-

0 1 7 -

-

-

19

100.0

8

Plant size not reported

Total plants using approach

% of all reporting plants

Justijcation approach

Strategic alone Economic alone Strategic and economic Economic and other None Other

6 17 48 1 5

1

7.7 21.8 61.5 1.3 6.4 1.3

Total

78

100.0

26.3 73.7

-

0 0 4 0 0 0

6 23 73 1 5 1

5.5 21.1 67.0 0.9 4.6 0.9

100.0

4

109

100.0

12.5 87.5

Notes

Small: $5 Million < annual sales < $50 Million. Medium: $50 Million -Cannual sales < $200 Million. Large: $200 Million < annual sales. n = 116 (number of respondents providing information on annual sales = 105).

justifying AMT investment proposals. Strategic evaluation was defined as a method that involves determining whether AMT will fulfill the business, competitive, research and development, and technical objectives of the plant. Table 2 presents an analysis of the usage of evaluation methods by plant size (with the level of annual sales used as a proxy for plant size). The majority of firms in each size classification were using hybrid justification approaches. All large and medium sized plants in this survey were using either purely economic or hybrid economic and strategic approaches. Although economic appraisal was the second most popular approach for the smaller plants, 14.1% of these plants had adopted a justification approach that did not include formal economic evaluation. Plants reporting that they used only strategic evaluation methods represented 5.5% of the reporting plants. Purely economic evaluation was used by 21.1% of the reporting plants. Most of the plants (67.0%) reported using combinations of both techniques. Five plants or 4.6% used no formal evaluation methods. The fact that the majority of plants had utilized joint evaluation methods might be indicative of the difficulty of justifying these systems on purely economic bases.

Hypothesis 1. Plants that use combined economic and strategic appraisal approaches are more likely to be successful than plants that use only one of the appraisal methods.

Testing of this hypothesis required the determination of a composite measure of success for each plant that had completed installation of their AMT project. This was achieved using the measurement process described below. 4.2.1. Measurement of AA4T success Respondents who had completed installation of their AMT were asked to rate the plants’ level of performance on twelve AMT benchmark activities. Each measure required a response on a seven-point scale ‘declined significantly’ having a score of 1 and ‘increased significantly’ meriting a score of 7. Since in some cases significant declines in a performance variable represented success, and in other cases significant increases denoted success, scores were converted to indicate the level of success achieved for each performance element. A factor analytic approach was used to derive the minimum number of factors that could represent the twelve success variables. A three-factor Varimax model proved to be most representative of the

M.H. Small, I.J. Chenllnt. J. Production Economics 49 (1997) 65-75

Table 3 Derived AMT success factors with factor loadings Factor

1

Time between conceptualization and manufacture of a new product Time needed for a major design change in an existing product Production changeover times Delivery lead times Production lot sizes Overhead costs

(0.804) (0.775) (0.704) (0.569) (0.556) (0.340)

Factor 2

Plant revenues Product quality Operator output rate Inventory turnover rates

(0.867) (0.736) (0.725) (0.358)

Factor 3 Average number of tasks per operator Variety of products manufactured

(0.745) (0.678)

inter-correlations among the variables. The resulting factors and factor loadings for the Varimax solution are presented in Table 3. Factor scores were constructed for each of the derived success factors using regression. Each variable was weighted proportional to the strength of its relationship with the common factor to develop scoring coefficients. These scoring coefficients were then applied to the raw data to compute factor scores for each case. The three success factor scores were then summed to develop a single numerical value to represent the composite level of success achieved by each plant. A t-test procedure was used to test this hypothesis. The 73 plants using combined economic and strategic methods were classified into one group and the 29 plants using only one method into the other. The mean level of overall success of each group was computed using the composite success measure derived previously. Plants using both methods were found to have a mean level of success which was significantly higher than those using only one method at the 2% level. The difference between the means for the groups of 0.77 represented a f-value of 2.428 and a p-value of 0.0169. Therefore hypothesis 1 was confirmed. Many authors (e.g., [S, 6,271) view the adoption of a hybrid evaluation strategy as a means of

11

enabling a firm to adopt an AMT that might have been rejected if a purely financial approach had been utilized. This finding indicates, further, that plants using hybrid financial and strategic techniques are more likely to be successful than other plants. Hypothesis 2. Of the plants that use hybrid economic and strategic justification approaches, those that emphasize strategic criteria will be more successful than those that emphasize economic criteria.

Slagmulder and Bruggeman [IS] found that economic criteria have become of secondary importance in the AMT adoption decision-making process. Their finding was based on the findings of a multiple case study involving six companies. This hypothesis seeks to determine whether or not emphasis on economic criteria might have a negative effect on project performance. Plants using both types of criteria were asked to indicate which criteria was given more weight in the final investment decision. Three groups were defined: those that considered the strategic appraisal to be more important, those that considered the financial appraisal to be more important and those that considered both appraisal methods to be equally important. The hypothesis was tested using an ANOVA procedure. The p-value of the ANOVA test was 0.9444 which indicated that differences in the mean level of success of the plants were not dependent on their appraisal method preferences. Hypothesis 2 was not supported by the data. The results of Hypotheses 1 and 2 indicate that while plants using both appraisal methods had higher levels of success, the preference for one method over the other had no impact on success levels. It appears, therefore, that the decision to use hybrid economic and strategic justification methods is more critical than the preference for one method over the other. One reason for this could be that the use of both methods forces plants to consider various aspects of the project that might not be considered if a singular technique were used. This expanded view of the project enables a more reasoned analysis of the project, regardless of the eventual appraisal preference. The need for hybrid economic and strategic approaches is strongly supported by these findings.

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Table 4 Number of departments involved in the justification of AMT Number of departments 0 1 2 3 4 5 6 7 Not reporting Total

Number of plants

% of all plants

2 8 26 36 20 9 2 1 12

1.7 6.9 22.4 31.0 17.2 7.8 1.7 0.9 10.3

116

100.0

Hypothesis 3. Plants using the more complex technologies are more likely to have multiple departments involved in justijication.

This hypothesis seeks to determine if there is any relationship between the number of functional departments involved in the investment decision and the level of complexity of the technology being considered. Analyses of the departments involved in justification decision making revealed that 62% of the plants used three or less departments, while 27.6% used 4 or more departments, 10.4% of the plants did not respond to this question. (see Table 4). A plant was considered to have integrated justification if three or more departments were involved in AMT justification activities. Chi-square tests revealed significant relationships with the level of integrated justification and the following technologies: FMC/FMS at 0.050 level, pick-and-place robots and other robots, both at levels of 0.030, AITS at the 0.011 level and MRP at a 0.034 level. In all cases, plants using three or more justification departments were more likely to adopt the technologies. However, when integrated justification was defined as having four or more departments involved in justification activities, there were significant or nearly significant relationships between level of integration and the adoption of the following technologies: FMC/FMS at a 0.013 level, pick and place robots and other robots, both at levels of

49 (1997) 65-75

Table 5 Functional departments involved in the justification of AMT Department title

Finance/accounting General administration Engineering/R and D Production/operations Management information systems Marketing Outside consultants Personnel Not reporting Total

Number of plants

% of all plants

91 65 60 53 24 10 6 2 14

78.5 56.0 51.7 45.7 20.7 8.6 5.2 1.7 12.1

116

100.0

0.016, AITS at the 0.000 level, CIM at a 0.057 level, JIT at a level of 0.000, and MRP at a 0.034 level. In these cases, plants having at least four departments involved in justification activities were more likely to adopt the technologies. The hypothesis was only partially supported. It appears that management at plants considering the adoption of these technologies should seek to encourage the involvement of several critical departments in the justification decision making process. Moreover, the number of departments involved in the justification process should be at least three, and for particular technologies should preferably be four or more. The following hypothesis was developed to assist in determining the composition of teams that are critical for project success. Hypothesis 4. The composition of inter-departmental teams for justification activities has an impact on the success of the AMT project.

This hypothesis seeks to extend the findings provided in Hypothesis 3 by delineating the specific functional departments that have been involved in successful AMT projects. The specific departments investigated were production/operations manageand development, ment, engineering/research finance/accounting, general administration, management information systems, marketing, personnel, and outside consultants. Table 5 represents a summary of the participation of functional departments in AMT justification

b4.H. Small, I.J. Chenjlnt. J. Production Economics 49 (1997) 65-75

Table 6 t-test results for differences in project success by functional departments Adoption activities

Difference in project success Planning

Department title Finance/accounting Management information systems Production/operations Engineering/R and D Outside consultants Marketing

0.09 1.15** 1.30* 1.43** 0.32 0.81*

Justification

1.65*** 1.11** 1.0s** 0.50 0.27 - 0.20

Installation

0.60 0.91* 1.77*** 0.91* - 0.04 0.66

*p-value < 0.10; **p-value < 0.05; ***p-value < 0.001.

activities. Marketing was only involved in justification activities at 8.6% of the plants. The low level of marketing involvement in AMT justification activities may be having a serious impact on setting marketing performance benchmarks for the project, it may also help explain the slow adoption of AMT in the USA. It appears that an AMT project which is evaluated solely on economic criteria is less likely to be acceptable than one that utilizes both economic and strategic criteria. Therefore, if lack of marketing involvement in AMT leads to failure to incorporate strategic marketing benefits such as increased market share or early entrance to market during justification it is very likely that a feasible AMT project may be rejected. Table 6 presents the results of the t-tests which were used to test this hypothesis. These results indicate that plants using production/operations management, finance/accounting, and management information systems departments at the justification stage had achieved higher levels of success. Participation of engineering/research and development, marketing and outside consultants was not found to be crucial at the justification stage of the project. However, participation of these departments was not shown to be detrimental to project success either. Thus, this hypothesis was supported. Table 6 further reveals that plants using production/operations management, engineering/research and development, management information sys-

73

tems and marketing for planning activities achieve significantly higher levels of success. This finding reinforces the need for marketing participation in AMT projects, especially at the planning stage. In terms of installation activities, the use of production/operations management, engineering/research and development and MIS departments was critical to achieving success. Thus, it can be concluded that the use of specific departments at different stages of the adoption is critical to achieving success. The findings with respect to the importance of production and operations management, and engineering and research and development support the contention that this represents a critical interface in the adoption of AMT [28-301. The need for an integrative working relationship between marketing and manufacturing at the planning stage, which has been enunciated by Blois [31] and Chen et al. [32] is also supported by these findings. The concept of functional integration has been advanced as a panacea for many organizational and operational problems in AMT adoption. In moving towards functional integration, many plants seek to involve as many departments as possible in implementation activities. Our research findings indicate, however, that such wide-spread involvement may be unnecessary, since it was discovered that there are some departments whose contributions are insignificant in determining the eventual success of the project.

5. Summary and conclusion There is little doubt that significant tangible and intangible benefits can be gained from implementing advanced manufacturing technology (AMT), and that failure to quantify all benefits is detrimental to the decision making process, whether the project is accepted or not. If the project is accepted, failure to quantify the expected benefits will create problems for performance evaluation, whereas a potentially useful project may be rejected if all the benefits are not carefully identified [33]. Our findings indicate that a vast majority of firms are not utilizing the more sophisticated justification techniques, such as risk analysis and weighted scoring models, which have been touted

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M.H. Small, I.J. Chenjlnt. J. Production Economics 49 (1997) 65-75

by many academicians as means of improving justification decision. The major hindrance to the use of these techniques seems to be their high level of complexity when compared to the traditional financial appraisal techniques. For these techniques to prevail in the industry, available research findings need to be disseminated to the wider manufacturing community. Models such as those developed by Badiru et al. [30] and Primrose and Leonard [31] would be useful in this regard. The use of multi-attribute spreadsheet models such as that developed by Badiru et al. [30] are particularly useful in organizations because most analysts are familiar with spreadsheet models, and they offer the ability to perform sensitivity analysis. This model, which permits the inclusion of both monetary and non-monetary factors in the analysis, contains several appraisal modules including one for the application of the analytic hierarchical process. Our results further suggest that firms that have adopted hybrid strategies which include both economic and strategic justification approaches are more likely to attain significantly higher levels of success from their AMT projects than plants that used only one method. It appears, therefore, that developing easily accessible and understandable means to incorporate strategic criteria into the decision making process will be the major charge to AMT investment analysts in the future. Participation of specific functional departments in planning, justification, and installation activities appears to have a significant impact on AMT success. The low level of marketing involvement in the AMT justification process could have a serious impact on setting marketing performance benchmarks for the project, it may also help to explain the slow adoption of AMT in the USA It appears that an AMT project which is evaluated solely on the ground of economic benefits is less likely to be acceptable than one that also considers strategic marketing benefits such as early entrance to market and perceived market leadership. Further research is needed to assess the importance of the marketing department in the planning and justification phases of AMT projects and to suggest how improved marketing involvement may be achieved.

Acknowledgements

An earlier version of this paper won the Best Research Paper Award at the Midwest Decision

Sciences Institute (DSI) annual meeting, Cleveland, Ohio, 24-26 April, 1994.

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