Strategic Capacity Management With Modular Manufacturing And Outsourcing: A Case Study

Abstract

This paper proposes that downsizing an industrial manufacturer’s capacity is a cost-effective strategy to reduce the cost of conversion while ensuring that adequate capacity is available to meet its business strategy requirements. A case study of a U.S. manufacturer of motors and other mechanical drive systems illustrates a proposed reduction in capacity that utilizes the development and implementation of a cost model to determine the best alternatives for a company whose capacity is not synchronized with its business strategy. The cost model for each alternative is investigated and compared against the ‘Do nothing’ alternative, using net present value and cash flow analysis to build a case for the most effective course of action. The findings show the benefits of merging manufacturing by separating people, non-people, and fixed costs by facility, product line and product. In addition, the paper also illustrates the benefits of modular manufacturing and outsourcing as a way to further improve costs after the reduction of capacity.