investment in facility changeover

POMS

PRODUCTION AND OPERATIONS MANAGEMENT
Vol. 14, No. 2, Summer 2005, pp. 159 –174 issn 1059-1478 ͉ 05 ͉ 1402 ͉ 159$1.25

© 2005 Production and Operations Management Society

Investment in Facility Changeover Flexibility for Early Entry into High-Tech Markets
Cheryl Gaimon and Alysse Morton
College of Management, Georgia Institute of Technology, 800 West Peachtree Street NW,
Atlanta, Georgia 30332-0520, USA
Gore School of Business, Westminster College, 1830 South 1300 East, Salt Lake City, Utah 84105, USA [e-mail] • [e-mail]

A

model is introduced to analyze the manufacturing-marketing interface for a firm in a high-tech industry that produces a series of high-volume products with short product life cycles on a single facility. The one-time strategic decision regarding the firm’s investment in changeover flexibility establishes the link between market opportunities and manufacturing capabilities. Specifically, the optimal changeover flexibility decision is determined in the context of the firm’s market entry strategy for successive product generations, the changeover cost between generations, and the production efficiency of the facility. Moreover, the dynamic pricing policy for each product generation is obtained as a function of the firm’s market entry strategy and manufacturing efficiency.
Our findings provide insights linking internal manufacturing capabilities with external market forces for the high-tech and high-volume manufacturer of products with short life cycles. We show the impact of manufacturing efficiency and a firm’s ability to benefit from volume-based learning on the dynamic pricing policy for each product generation. The results demonstrate the benefits realized by a firm that works with its manufacturing equipment suppliers to develop more efficient and flexible technology. In addition, we explore how opportunities afforded by pioneer advantage enable a firm operating a less
efficient

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