The International Journal of Flexible Manufacturing Systems, 5 (1993): 5-25

© 1993 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.

Design Justification of Manufacturing Systems--

A Review

JAMES S. NOBLE
Department of lndustrial Engineering, 113 Engineering Building West, Universityof Missouri, Columbia, MO 65211
J.M.A, TANCHOCO
School of Industrial Engineering, Purdue University, West Lafayette, IN 47907

Abstract. The development of design systems which ensure economic feasibility has been the focus of recent
research in the manufacturing area. Traditional design and justification approaches have been cited as having
shortcomings; thus, there have been a variety of modifications and enhancements developed. An approach that
is conceptually different from the traditional approaches seeks the integration of the economic analysis within
the design process. We denote this approach as the design justification method. This paper reviews literature
related to the explicit and implicit integration of economic factors in the manufacturing system design process,
followed by Supporting issues for the implementation of the design justification concept.

Key Words: design justification, economic design, manufacturing system design, design methodology

1. Introduction

Design and justification of manufacturing systems have been the focus of discussion for
many years. However, the advent of new manufactuirng technology has necessitated the
development of new approaches to the process of justifying these new technologies. Gold
(1982) identifies the differences between computer-aided manufacturing (CAM) and con-
ventional manufacturing technology in terms of their nature and how they should be evalu-
ated. Specifically, Gold notes that,

Conventional wisdom has it that manufacturing equipment: (1) is directly and exclusively
applicable to limited sections of the production process; (2) has capabilities that are
known and stable; (3) produces benefits that are best judged by engineers and super-
visors in affected operations; and (4) makes a contribution to process efficiency and
cost reduction that can be closely measured at the outset. None of this wisdom applies
to CAM (p. 89).

He goes on to state that CAM should be evaluated taking into account the typical lack of
sufficient knowledge about C A M ' s potential, the effect of a longer planning horizon, effect
of delaying CAM implementation on company competitiveness, and the operations integra-
tion effects that may be attributed to CAM.
Based upon the arguments presented by Gold and others, work on the evaluation of man-
ufacturing systems has gained momentum. This article will briefly review the modifications
6 JAMES S. NOBLEAND J.M.A. TANCHOCO

that have been done to the traditional design and justification approaches. Then, the con-
cept of design justification will be explored and the corresponding review of the literature
given.

1.1. Traditional Design and Justification Approaches

A common response to the need for new approaches to the justification and evaluation
of modern manufacturing systems has been to modify or enhance the application of tradi-
tional justification approaches. Traditional approaches are defined as those commonly found
in engineering economy textbooks such as discounted cash flow, internal rate of return,
payback, etc. (Grant et al. 1982; Au and Au 1983; White et al. 1989). Arbitrarily high
hurdle rates and an incomplete understanding and inclusion of the benefits associated with
new technology have been noted to be the main pitfalls in the application of traditional
justification approaches to new manufacturing technology (Kaplan 1986; Hayes and Garvin
1982; Canada and Sullivan 1990). Kaplan argues that discounted cash flow (DCF) approaches
have only been misapplied in the justification of computer integrated manufacturing (CIM)
and that with a thorough understanding of the associated technical issues, and tangible/in-
tangible benefits, the DCF approaches can be used to properly justify CIM. Canada and
Sullivan support Kaplan's conclusion and show how different intangible benefits can be
included in the analysis and how the source of cost information can be made more accurate.
In contrast to Kaplan, Hayes and Garvin argue that the DCF approaches rest on assump-
tions that promote disinvestment, rather than investment.
There are a variety of publications and annotated bibliographical reviews that cover modi-
fications or enhancements on traditional justification approaches. Canada (1986) presents
an annotated bibliography predominately focused on general CIM design and justification
issues. Meredith and Suresch (1986) summarize the traditional and recent justification tech-
niques for advanced manufacturing systems: economic--DCF, payback, ROI, etc.; ana-
lytic-value, portfolio, and risk analysis; and strategic approaches. Wallace and Thuesen
(1987) extend and update Canada's bibliography by concentrating on literature specific to
investment in flexible automation.

1.2. Design Justification Defined

An approach that is conceptually different than the traditional approaches to justifying man-
ufacturing systems relies upon the integration of the economic analysis within the design
process. We denote this approach as the design justification method. Design justification
refers to the concurrent or simultaneous consideration of performance and economic issues
during the development of a manufacturing system. A review of literature pertaining to
the design justification as it applies to new product development can be found in Noble
and Tanchoco (1990).
Figure 1 contrasts the traditional system design and justification process with the design
justification process. Both processes handle the development of design specifications and
constraints in a similar fashion. The primary difference between the processes is twofold: