Journal of Manufacturing Systems Volume 13/No. 2 Quantifying the Flexibility Value in Automated Manufacturing Systems Young S. Pyoun* and Byoung K. Choi, Korea Advanced Institute of Science and Technology (KAIST), Taejon *now at SunMoon University Abstract This paper attempts to narrow the discrepancy between the promised and actual benefits of the avail- able financial evaluation tools for considering cost/ benefit tradeoffs of investment in flexible automation of mass manufacturing systems and the actual benefits. To obtain a deeper insight into flexibility and to give consideration to all possible aspects of user experi- ence and capability, the concepts of potential flexibility and realizable flexibility are introduced. Potential flexi- bility is classified into four elements and realizable flexibility into 11 elements, and a systematic procedure for quantifying realizable flexibility in monetary terms is proposed. The procedure has been applied to a test case with encouraging results. Keywords: Flexibility Value, Automated Manufac- turing Systems, Investment Planning and Justification Introduction and Literature Review Production managers of many firms, under pres- sure to make automated manufacturing systems more flexible, are finding that there is still a considerable gap between benefits promised by financial evaluation tools and benefits realized in practice. 1-s In this paper we attempt to narrow this evaluation gap. Here we define the flexibility of a manufacturing system as its capability to cope with internal and external changes. In previous studies, many researchers have tried to quantify the flexibility in monetary terms and integrate it with decision-making tools. We can classify these studies into three groups according to the researchers' methods of quantifying the flexibil- ity (see Table 1). Among the researchers in Group C of the table, whose methods we follow, Son and Park's 24 study was the first to quantify each of four flexibilities, which were identified separately in monetary terms, and to use different units for measuring flexibility and quantifying flexibility in monetary terms. But they did not distinguish the flexibility that is inher- ent in the manufacturing system from the flexibility that the user can attain after implementation. 28-3° Also, as Swamidass and Waller31 have recognized, "regardless of the diversity of approaches, researchers are not successful in quantifying strate- gic benefits (of flexibility) for use in financial justification models." Some researchers perceive that the evaluation gap arises from lack of insight into flexibility. 6-s'29 Especially, Gupta and Somers 32 proposed an instru- ment designed to measure manufacturing flexibility and identified underlying components of manufac- turing flexibility using factor analysis. But they likewise did not clearly distinguish the flexibility inherent in the manufacturing system from the flexibility that the user can attain after implementa- tion. Consequently, we develop a new approach to remedy some of the above shortcomings. We restrict our attention to automated mass manufacturing systems, that is manufacturing sys- tems for mass production, such as conventional transfer lines and the "high-capacity systems" mentioned in Ranta and Tchijov. 3 In an extensive survey4 of flexible manufacturing systems installed worldwide, about 78 of the 300 surveyed were for mass production. This figure amounts to about 26% of the number of installations, but the percentage would be much higher in dollar values (on account of the larger mass manufacturing systems). Further, based on an analysis of International Institute for Applied Systems Analysis (IIASA) data from 800 flexible manufacturing systems worldwide, Ranta and Tchijov found that one of the two classes of economically successful systems is "the large-scale and technically complex systems used in large- 108