Consideration of Market Demand Volatility Risks, when Making Manufacturing System Investments

When investing in new manufacturing systems, many aspects must be taken into consideration to ensure a sustainable business. In respect to the financial aspect, both the one-off investment cost and the continuous operational cost must be analysed to ensure that the life-cycle cost perspective is appreciated. However, one detail in the cost analyses that is often overlooked is the composition of fixed and variable cost elements. These details are important to be able to better manage the risk of market demand volatility, and accordingly make appropriate investment decisions. This case study demonstrates that when there is a low risk for reduced market demand, investing in a manufacturing system with low variable cost is favourable. However, if there is a high risk for reduced market demand, the importance will instead be to have a low fixed cost, as this will be the dominant cost factor.