Optimal Acquisition of FMS Technology Subject to Technological Progress*

Abstract

ABSTRACT In order to gain competitive advantage, a firm must link its technology choice to its total manufacturing strategy and business unit's goals. A dynamic model is presented to examine the strategic decision concerning the acquisition of flexible manufacturing systems (FMS) technology. A major contribution of this model is its ability to capture the strategic benefits of FMS with respect to economies of scope and technological progress. Decisions such as the timing and size of new technology acquisition and the scrapping of conventional capacity are explored as a firm plans for the upgrading of its facility to meet future dynamic strategic goals. This model may be used to assist with strategic planning because it identifies the critical relationships and trade‐offs between various exogenous forces (such as market growth or decay, the cost of acquiring flexible manufacturing systems, and the rate of technological progress) and the decision variables considered.