Cost modelling as decision support when locating manufacturing facilities

Abstract

This paper presents a methodology for cost estimation in developing decision supports for production location issues. The purpose is to provide a structured work procedure to be used by practitioners to derive the knowledge needed to make informed decisions on where to locate production. This paper present a special focus on how to integrate cost effects during the decision process. The work procedure and cost models were developed in close collaboration with a group of industrial partners. The result is a structure of cost estimation tools aligned to different steps in the work procedure. The cost models can facilitate both cost estimation for manufacturing a product under new preconditions, including support costs, and cost simulations to analyse the risks of wrong estimations and uncertainties in the input parameters. Future research aims to test the methodology in ongoing transfer projects to further understand difficulties in managing global production systems. In existing models and methods presented in the literature, cost is usually estimated on a too aggregated level to be suitable for decision support regarding production system design. The cost estimation methodology presented here provides new insights on cost driving factors related to the production system.