P R O D U CT I O N P L A N N I N G & C O N T R O L , 1998 , V O L . 9, N O .

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E conom ic v iew of CI M sy stem architectu re

Y U L I U CH E N , M I T CH E L L M . T SE N G and J . Y I E N

K eyw ord s CI M , sy st em a rchitectu re, m odellin g, A BC ( A ctiv ity Based Costin g ) , A H P ( A n a lyt ica l H iera rchy P rocess) A b st rac t. Th e sy n erg istic a dv a nt ag e of sy st em s int eg ra tion for Com p u ter I nt eg ra ted M a nu fa ctu rin g ( CI M ) h as b een a p ow erfu l th ru st behin d t he p rodu ctivity a dv a ncem en t in recen t deca des. H ow ev er, th e d ep en dency am ong com p on en ts, th e inta n gib le bene t s a n d com plexit y of th e sy stem ha v e been a b ar rier for sy st em d ev elop ers a nd t he b usiness com m u n ity . T h is p ap er rep orts a system a tic ap p roach t o a ssess econ om ic m er its of t he CI M sy st em . I t projects CI M system d esign s on a m u ltip le

la yer ar chitectu re w ith consid era tion of project life cy cle. I t introd uces a m od el ling form a lism t o p resen t a structu red v iew of th e econo m ic a sp ect of th e CI M system . T h e m u ltip le criteria s a sp ec t of CI M justi ca tion w as trea ted w ith th e A H P ( A n a ly tica l H iera rch y P rocess) m eth od. Th e com p lexity of va riou s cost fa ctors is redu ced th rou gh a pp licat ion of th e A BC ( A ctiv ity Based Cost ing ) m et hod . T h e b en e ts of low lev el a ctivities, b ot h ta n gib le a nd inta n gible, a re th en h ierar chica lly ag g reg a ted int o high er level system ob jectiv es. I t a lso p rov ides t he n ec essa ry lin ka g es b et w een th e econo m ic a nd oth er v iew s. A sim ple ex a m ple w a s used t o illustrat e th e ap p roach.

A utho rs : Y . Ch en , D ep ar tm en t of A u tom at ion, Tsin gh ua U n iversity , Beijin g , Chin a ; M . M . T sen g a n d J . Y ien , Depa rtm ent of I nd ustrial E ng ineering a n d En g ineerin g M a na g em en t, H on g K on g U n iversity of Science a n d T ech n olog y, H on g K ong . Yuliu Chen g rad ua t ed from Dept of E E, T sin g hu a U n iversity , Beijing , in 1959 . H e ha d h is a d va nced st u dy a t U M I ST a nd U n iversity of Strat hclyd e, U K from 197 9 to 1982 . U p to n ow , h e h a s been tea ching an d resea rch ing in T sing h ua U niv er sit y for 38 y ea rs. Before 1987 , h e m ajor ed in a u tom a tic con trol sy st em s, especia lly la rg e-sca le sy st em s th eory a n d its a pp lica t ion s. A fter 1987, h e ha s been concen trat ing in th e resea rch an d im plem en ta tion of Com p u ter I nt eg ra ted M a nu fa cturing . H e ha s w or ked for t he CI M im p lem en ta tion of sev era l large Chinese com p a nies, a n d d id resea rch on CI M desig n an d im p lem en ta tion m et hod olog y. H is cu rrent resea rch interest lies in CI M sy st em ar chitectu re an d cor resp on d ing m od ellin g m eth od s, as w ell a s ju sti ca t ion criteria of CI M im p lem en ta tion . H e is a sen ior m em b er of I EE E, a nd a fellow of H ong K on g I nstit ut e of En g ineers. H e ha s p ub lish ed fou r b ook s an d m or e t ha n 90 p ap er s.

Mitchell M. Tseng join ed t h e H K U ST fa cu lty a s th e fou nd ing d ep ar tm en t h ea d in 199 3 a ft er h olding en gin eerin g ex ecu tiv e posit ions at X erox a nd D igita l E qu ip m ent Cor pora tion for a lm ost t w o d ec ad es. H e ha s been t ea ching a nd consult ing on b u sin ess p rocess d esig n , A I ap p lica tion s, m a na g ing techn olog y a n d system s d esig n. H is B.S. d eg ree is from Na tion a l T sing h ua U n iv er sit y ( H sinchu , T a iw a n) . H e ea rn ed b oth h is M SI E ( 1973 ) an d P h .D . ( 1975 ) degrees from P urdu e U n iversity .

J. T. Yien is w ork ing a s a con su lta n t in t he CA D Cent er of th e H on g K on g P rod uctiv ity Coun cil, H on g K ong . H is resea rch int er est s includ e d esign of m a n ufa cturing a n d ent erp rise syst em s, b usin ess process reen gin eerin g, a xiom a tic desig n an d sup p ly cha in m a n ag em en t. H e h a s earned h is b a chelor a n d m a st er deg rees in ind u st ria l en g ineering a t t he U niv er sit y of W ind sor, Ca na d a a nd is curren tly a P h .D . can d ida te in ind ustrial eng ineering a nd en gin eerin g m a n ag em en t a t th e H on g K on g U n iv er sit y of Science & T ech nolog y .

0953-7287/98 $12 . 00

1998 T a ylor & F ran cis L td .

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1. Intr oduction

Y ul iu C he n et al.

I ntegra tion of the m anu facturing system has been a v ery im por ta nt subject in m anufactu ring industries in the last tw o deca des ( Chen 1991) . I n particular the econom ical im plications of system integra tion hav e dra w n a signi ca nt am ou nt of interest from aca dem ics an d pra ctitioners. T he integration of CI M system s striv es to deriv e synergism am on g di erent elem ents in the m anufa cturing system s. E ach individual com pon ent, regard less of its size of investm ent, often ca n not be justi ed on its ow n m erits. R eturn s of CI M system inv estm ent , both ca pital and hum an resources, ca n be elusiv e. Com pounding the com plexity of the system design, dy nam ic changes during the life cy cle of the CI M system im plem entation are also considered in this research project. T he proposed system atic approach starts w ith projecting a CI M ( Com puter I ntegra ted M anufacturing) syst em in a m ulti-layer system architecture. T hrough w hich, on e ca n apply the A naly tical H ierarchy P rocess ( A H P ) , a theoretically sound process, to decom pose the system ob ject ives and evalu ate di erent system altern atives according to m ultiple criteria. A ctivity Ba sed Costing ( A BC) is also adapted here for connecting k ey cost driv ers in m anufacturing enterprise w ith the business ob ject ives. The ob jectives of this research are sev eral fold: it provides a system atic approach to ev aluat e di erent design op tions for m anufa cturing system s; it prov ides a fram ew ork for both business m anagers and technical profession als to better com m unicate the business needs and technical op portunities; it enables the CI M project team to prioritize the large num ber and som etim es con icting priorities of CI M initiatives. T his paper reports som e of ou r ndings and uses a sim pli ed exam ple to illustra te the approach. I n the next section , the ap plied CI M architecture w ill be introduced and the role of the econom ic v iew describ ed. I n Section 3, a proposed m od elling form alism w ill be ex plained. I n Section 4, the A H P m ethod w ill be introduced to treat the inta ngible factors. F inally , ba sed on the relationships w ithin SL A , the intercon nection s am on g di erent v iew s are explain ed and a brief conclusion given.

F igu re 1. St air-lik e CI M sy st em a rchit ect ure.

2. T he cont ents of SL A and the ro le of the econom ic v iew

2.1. C I M s y s te m ar chit e ct ur e A na ly sing the problem of global CI M system integra tion w ill usually start from establishing a system archi-

tecture ( Chen 1992 ) . A CI M system architecture ca n be de ned as `a s e t of st ruct ur e d m ode ls that r e p r e s e nt di e r e nt as p e cts of the w hole ente rp ri s e ( A M I CE 1993) . I n essence, m od els are used to extra ct the m ain system chara cteristics for describing and analysing the system s. Because CI M system s hav e m any di erent aspects, expressions from di eren t perspectives, in this paper referred to as v iew s, are im portant to de ne the system s w ith clarity . Sev eral representations of CI M system archit ecture hav e been proposed in recent y ears. CI M OSA ( 1993 ) , P E R A ( W illiam s 1992 ) , GI M ( GR A I 1992 ) , etc. are exam ples of CI M archit ectures often m entioned in the CI M research com m unity . T hese CI M architectu res prov ided im portant fram ew ork s for pra ctitioners to plan and im plem ent CI M system s in industry . I t also serv ed as a road m ap for dev elopers to design system com pon ents. H ow ev er, they are still far from general acceptance, on e of the di cu lties arises from the gap in the dy nam ic natu re of the dev elopm ent life cy cle and the econom ic reality of the CI M system . A Stair-L ike CI M Sy stem A rchitecture, sim ply ca lled SL A , proposed by Chen ( 1996 ) , attem pts to prov ide som e rem edy for ov ercom ing this di cu lty. I n this proposed archit ecture, an econom ic v iew is explicitly incorporated. A s show n in gure 1, this schem e of system architecture includes six v iew s in the conceptual dev elopm ent stage, i.e. function, inform ation, resource ( phy sica l) , decision, organization and econom ic v iew s. F irst, function al requirem ents for op erating the system w ou ld be described in function v iew by the I D E F 0 m ethod . T hen, resource v iew provides the necessary resourses to support the realization of function al requirem ents. I n form ation, decision and organization v iew s are describing di erent aspect s of the global system . F inally , the econom ic v iew w ill be described in detail in this paper.

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2.2. A p p ly ing C I M ar ch ite ctur e f or analy si ng s y s te m inte g r ation CI M im plem entation often starts from tw o m od els, i.e. A S-I S and T O-BE m od els. T he A S-I S system m od els are built to serv e as a snap shot representation of the ex isting system . I t is often dra w n by re ecting the existing system s constru ction under a CI M architectu re. Sim ilarly , T O BE m od els are used to describe the design of new system s. D i erent v iew s are also ca ptu red in m od el description so that analy sis ca n be ca rried ou t. F or exam ple, the function m od el of the system m eans that it is an abstract representa tion for the functionality of the system . I t represents an aspect that is interesting to the analy sis. A lthou gh it does not represent the entire system , it prov ides a v ery useful m eans to m od el a particular perspective of the entire system for analy sis. I n this sense, it can be called a v iew of the global system . T he existence of di erent v iew s m eans that the global system ca n be analy sed from di erent perspectives. T his is sim ilar to the engineering dra w ings that di erent v iew s are exp ressed to describe a com pon ent or assem b ly . E ach v iew has its ow n propert y. H ow ev er, all of them are useful in describing the sam e system . Often there are interactions am on g di erent view s and so could not be com pletely orthogon al. T hey com plem ent each other to m ak e the w hole representa tions, i.e. the system architecture, com plete and accura te. By check ing the consistencies and coh erence of those A S-I S m od els of di erent v iew s, the inconsistent problem s, or con icts, w ou ld be found. T hese shou ld be solv ed or im prov ed in the design of the new system. The graphical modelling languages make the w ork much easier and clearer than only using descriptive analysis.

m od els of the existing system ( A S-I S) should be built to analyse the problem s that need to be re-engineered. T hen, a set of desired futu re m od els shou ld be designed to express the propert ies of the T O-BE system . T his is the contents of prim ary system design. T hen, designers shou ld m ap these con tents in the m od els of the new system to a detailed technical speci ca tion. F or realizing all the requirem en ts in this speci ca tion, a detailed design in three con cret e dom ains, i.e. m anufacturing, inform ation, and hum an and organization, should be produced for this new system . T he ou tcom es of detailed design are speci c system s speci ca tions. T hey are concrete, accu rat e and directly realiza ble. N o m ore abstract m od elling w ou ld be needed for this stage and later. 2.4. T he r ole of econo m ic vie w The decision to go ahead and im plem ent CI M often requires detailed justi ca tion, e.g. a return on investm ent. Based on the A S-I S m od els, cost /bene t ana ly sis could be ca rried ou t. This w or k help s to identify those non -valu e added or little v alu e-added processes, and to set priority for those processes w hich need to be reengineered. T hen, by com paring the sam e perform ance indices of T O -BE m od els w ith that of A S-I S m od els, it facilitates the decision m ak ing process. D uring the prim ary system design stage, a num ber of data w ere ob ta ined based on estim ation or referred to sim ilar existing data. A fter the detailed design, actual costs of new facilities an d other resources w ou ld be ob tained. Substituting those para m eters into the econ om ic m od el to correct the original estim ations w ill help the designer to get m ore accura te results. I t is a necessary iteration. T hen, the cost/bene t di erence betw een the A S-I S and T O-BE m od els indicates the im provem ent of establishing the new system .

2.3. T he char act er is ti cs of S tai r- L i k e C I M s y st em ar chite ct ur e T he Stair-L ike A rchitecture ( SL A ) contains a three axes fram ew ork ( gure 1) . E ach axis, in essence, conta ins di erent ty pes of m od els for analy sis. T he rst axis prov ides the v iew s for designers perform ing m odelling analy sis. A total of six v iew s ca n be considered. D epending on the com plexity of the system s, designers ca n choose the num ber of v iew s as required. T he second axis show s P roject L ife Cycle, i.e. project de nition, analy sis, prim ary design, detailed design an d im plem entation. Because the job of a w ork ing team for CI M im plem entation w ou ld be considered com p lete w hen the glob al integra ted system starts to op erate norm ally , the focus of CI M architecture is in the area of project form ulation and dev elopm ent. T he m aintenance stage is not considered in this architecture. T he third axis is for stepw ise realizat ion. I n pra ctice, m od elling analysis is usually used for conceptu al analy sis and prim ary design. F irst,

3. M odellin g for m alis m of econom ic v iew

3.1. W hy is the A B C m e thod chose n f or this m odelling f orm alism ? The ob jective of the econom ic v iew m od elling is to analyse and help justify the nancial aspect s of CI M system s. Since CI M system s inv olv e a huge am ou nt of inv estm ent, it is necessary to have com plete and tru e nancial inform ation for a justi ca tion purp ose. T ra ditionally , cost accounting has play ed a role to prov ide such nancial inform ation to show how di erent processes con tribute to the pro tability of a business. I t is v ery com m on in the old practice to focus on prod uct costs that are deriv ed from xed and v ariable costs. F ixed costs are those w hich are insensitive to the sales v olum e,

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w hereas variable costs are those w hich vary w ith sales v olum e. T his conv entional cost accou nting m ethod w orked w ell in the past becau se business in the old day s w as m uch sim pler than now aday s, such that production of products w as the m ain activ ity. A lso, the v ariety of products w as sm all and dem and of cu stom ers w as relatively low . T herefore, xed costs could all be allocated to products for total cost calcu lation. Once produ ct costs w ere determ ined, w ith the sales data , the im portant indices such as pro t and loss, and return on inv estm ent could be com puted. H ow ever, the com p lexity of enterprises has increa sed as the dem and of cu stom ers and the dy nam ics of the m ark etplace increase. I n a com plex organization like a CI M enterprise, production is no longer the on ly prim ary activity . P rocesses such as sales and m ark eting, m aterial acq uisition, quality assura nce, distribution and cu stom er dem and handling use up m ore and m ore resources today . T hese processes m ay not produce ta ngible ou tputs as production processes do. T hus, the tra ditional cost accounting m ethod that has focused on ly on product costs ca n no longer prov ide a true and com plete nancial picture for m anagem ent to ev aluate the business and m ak e business decisions. L ikewise, this accou n ting m ethod ca nnot tell w hether CI M technolog y is justi ed to m eet the business requirem ent s. I n order to accu rately assess how CI M technology bene ts enterprises, a costing technique that considers not on ly production, but also other processes is required. T he A ctivity Based Costing ( A BC) m ethod ( L ew is 1993) is thereby selected and applied in the SL A econom ic v iew .

A nother im por tant concept of A BC is an activity or cost driv er. I t is a quanti able and op erating m easurem ent of resource utilization and cost intensity . F or instance, on e of the cost drivers of an order processing activity is the num ber of orders, w hich a ects both tim e and cost of the activity . I n addition , since costs are incu rred for resources and resources are dem anded by activities, tw o parties: process ow ner and resource ow ner, are related through costs. I n the A BC stru cture, process ow ners set their op erational goa ls and these a ect the selection of resourses. Therefore, resource ow ners need to upgra de and m aintain the quality of their resources. This concept brings us to a higher-lev el applica tion of A BC that re-eng ineers the enterprise practice. A chieving the balance betw een process ow ners and resource ow ners by CI M system design becom es the job of system designers and system integrators.

3.3. P r inc i p le s of A B C m ode l ling f or m al is m f or the S L A e cono m i c view A m od elling form alism is dev eloped to app ly activit y based costing in the SL A econom ic v iew . T he m od elling form alism is based on I D E F 0 m ethod . Since A BC focuses on process, and so does the I D E F 0 m ethod , the I D E F 0 m od el has been extended to include activity based cost data . I t ca n be assured that no activity w ill be m issed for cost assignm ents w ith the integration w ith the I D E F 0 m od el. H ere, a separa te econom ic m od el tha t is correspon ded to the function v iew s I D E F 0 m od el w ill be constru cted. T here are four attribut es in each m od el block : nod e num ber, activity nam e, cost driv er, and cost v alue. T he rst tw o attributes are taken directly from the I D E F 0 m od el, w hereas the latter tw o are to be de ned by designers. A s show n in gure 2, the cost m od el form s a hierarchy exactly like the I D E F 0 m od el. Sub-p rocesses are de ned dow n to bottom -level activities that are the m ost basic elem ents. The follow ing are som e guidelines for constru cting an econom ic m od el: N o attribute ca n be left em pty . Cost v alu e of a parent process m ust be the sum of the cost v alu es of all its low er-lev el sub-p rocesses or activities. I f there is a cost for coordinating activ ities of the sam e level, coordination shou ld be m od elled as an activity of that level too. T his m od el ca n be decom posed as a hierarch y equivalent to I D E F 0 hierarch y .

3.2. T he b as is of A cti vity B as e d C ost ing A ctivity Based Costing is a technique to accura tely ca lculate the cost and pro tability of products, serv ices, cu stom ers and m ark eting support. These costs are de ned by identify ing the costs of activities and the resources consum ed. I t is im portant to note that cost s in A BC structure are exchanged for resources to com plete a process, w hich is a netw ork of related activities, instead of being exchanged for products. I n fact, a business becom es com petitive not beca use of produ cts on ly , but other processes as w ell. So, A BC assigns costs to products, serv ices, serv in g cu stom ers and business sustaining. T hese item s are referred to as cost ob jects. Of these cost ob jects, costs incu rred for serv ices or serving cu stom ers w ill never be allocated to products. T hese cost ob jects and activities are those upon w hich the A BC technique w ill assign cost s based on the m easurem ent of resources con sum ed. I n other w or ds, costs w ill not be ev enly allocated.

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F igure 2. Exa m ple of a cost h iera rchy .

A ssignm en t of cost v alu es shou ld be don e in a bottom -u p m anner, so that higher-lev el activity cost v alu es ca n be consolidated and assigned accordin gly. F or exam p le, as show n in gure 2, the cost driv ers of the process `deliv ery of part A s , `prepara tion of raw m aterial , `production of part A s , `purchasing m aterial , `w ork order control for part deliv ery , `preparation of N C program , `m achine set-u p and `m achining are de ned. T he next step is to assign cost v alu es for `prepara tion of N C progra m , `m achine set-u p and `m achining . H ence, the cost valu e for `production of part A s ca n be ca lculated by sum m ing up the A 2n s cost v alu es. Sim ilarly , the cost v alues for `prepara tion of raw m aterial , `purchasing m aterial and `work order control for part deliv ery are assigned, and nally the cost needed for `deliv ery of part A s is determ ined. I t is noted that in order to deliv er a product, processes lik e production planning and shipping are necessary , and thus the costs for these processes w ill be added up to determ ine the total cost of a prod uct. I t is noted that this A BC m od elling m ethod can be applied to the existing processes as w ell as estim ating costs for new system s. A w ide v ariety of projects can be bene ted. T he ob ject ive is to accura tely ca pture or estim ate the project costs.

these chara cteristics of a process or activity , m echanism s are the m ost concern from the costing perspective. Since the de ned m echanism s are the resourses, either phy sical facilities or hum an sta and labou r, em ploy ed by the process, they becom e the targ et of exchange by costs. W ithou t clear speci ca tion of these m echanism s, it w ill be di cu lt to estim ate costs accura tely. Bu ild the corresponding m od el hierarchy . A cost hierarchy is form ed in a top -d ow n m anner, corresp on ding to the I D E F 0 function m od el. T he nod e nu m bers and process nam es should be directly tak en from the I D E F 0 m od el. T he entire hierarchy is com pletely built w hen the m ost basic activities are de ned . D e ne the cost driv ers for all the processes and activities. A fter the m od el hierarchy is constru cted, cost drivers for processes and activ ities at all lev els are de ned now . I t is noted that cost driv ers shou ld be m easureable so that the cost v alues ca n be com puted later. A ssign the cost v alues to all the processes and activities. O nce all the cost driv ers are de ned, cost v alu es are com puted and assigned. T he cost assignm ent is started from the bottom lev el and is proceeded upw ard . I n fact, on ce the bottom lev el activit y costs are com puted, the upper-lev el costs w ill be determ ined easily by adding up the low er-lev el costs, including the coordinating activity as a separa te activity to be considered as A 4 show n in gure 2. V erify and valid ate the accura cy of the cost m od els. V eri ca tion and v alidation are v ery im por ta nt to every m od elling e ort. V eri ca tion refers to exa m ining syntax of the m od el, w hereas v alidation assures the m od el content re ects the reality. I n this m od elling proced ure, the de ned cost driv ers w ill be v alidated rst, then the activity costs at the bottom lev el and follow ed by rem aining activity costs v eri ca tion. I t is also recom m ended to set up a w or king team for the m odelling w ork and an audit team for v eri cation and validation .

3.4. T he m ode ll ing p roce dur e Bu ild I D E F 0 m od els for function v iew of SL A . A ll the processes and activities are speci ed in the I D E F 0 m od el. A hierarchy w ill be form ed in a topdow n m anner. I n the I D E F 0 m od el, w e w ill de ne the inputs, ou tputs, con trols and m echanism s. Of

4. Incorp orating analy tic hier ar chy proces s m ethod into the jus ti cat ion fr am ew or k

4.1. E cono m ic jus ti cat ion f r am e w or k f or C I M Bene ts that CI M technology provides ca n be classi ed into both tangible and inta ngible. Tangible bene ts include, but are not lim ited to, shorter lead-tim e, reduced

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inv entory and low er product costs. E xa m ples of intangible bene ts that m ay lead to increased m ark et share and higher pro tability are quick er respon se to m ark et needs, im prov em ent in on -tim e deliv ery and higher serv ice level. I n order to fairly justify inv estm ent for CI M , on ly focusing on tangible bene ts w ill not be adequate. H ow ev er, how w ell and w hen the intangible bene ts w ill be realized cannot be easily pred icted. I n addition , not on ly the e ects of investing in CI M need to be evalu ated, but also the e ects of not investing in CI M require to be thou ght through. Since inv esting in CI M is not for the sake of the technology itself, it is im portant to hav e the resulting business and m anu facturing processes m eet the targ et perform ance. T hese op erational m easures shou ld be deriv ed from the com pany goa ls that align w ith the corporate stra tegies. T he question s are: w hether the invested technology ca n e ectively bring the business to the targ et, and if the inv estm ent is econom ically sound. T he activity based costing technique discussed in the last section tak es ca re of the tangible aspect and deals w ith the secon d question. H ence, the rst question w ill be hand led by using the A nalytical H ierarchy P rocess ( A H P ) m etho d ( Saaty 1980 ) . A fter all, cost and ben e t analy sis ca n be perform ed by integra ting the results of A BC and A H P . 4.2. T he b as is of the A naly tical H ie r ar chy P r oces s m e th od T here are three principles that underlie the A H P . T hey are: the principle of constru cting hierarchies, the principle of establishing priorities, and the principle of logical consistency . I t is ob serv ed that people perceive, identify and constru ct things and ideas in lay ers that are decom posed into details, and therefore, hierarchies are na tura lly form ed. T hus, it w ill be m ore e cient and e ective to break dow n a com plex problem or subject into di eren t aspects and form a hierarchy for analysis. A m on g di erent op tions to a problem , people natu ra lly com pare them in pairs. I n order to identify the m ost prom ising op tions, w e hav e to set priorities of ou r preferen ce. One e cient w ay is to use num erica l sym bols to express the priorities. To select from m ore than tw o options, w e still com pare in pairs, but m ore tha n on e pair. F or instance, there are three pairs to com pare w hen there are three op tions and six pairs for four op tions. A fter the com parisons, ou r concern turn s to the accura cy of these com parisons. L ogical consistency now com es in place to ensure the accura cy . F or instance, w hen op tion A is w eighted tw o tim es better

than op tion B, and op tion B is three tim es better than op tion C, then op tion A shou ld be six tim es better than op tion C. Our ratio betw een op tion A and op tion C needs to be check ed against the consistency . T hese three principles constitute the basis of the A H P m ethod . Because of the ability to quantitatively ev alu ate altern atives, A H P has been w idely used to ana ly se a w ide range of problem s that inv olv e qualitative criteria. A sim pli ed illust rative exa m ple is given in the next sub-section.

4.3. A n il lus tr at ive e x am p le A m anufacturing com pany is launching a project for adva ncem ent in order to k eep the com pany grow th. A n am ou nt of fund is reserved for the rst stage of advancem ent. D ue to the lim ited budget for the rst pha se, a team of m anagers, analy sts and engineers is asked to m ak e an inv estm ent proposal. T he A H P m ethod is em ploy ed by the team to decide w hich area should be allocated the initial fund. A hierarchy of the adv ancem ent inv estm ent problem is constru cted as gure 3. K ey stra tegies to keep the com pany grow ing are identi ed as to increase m arket share and enhance pro tability . T o achieve these, characteristics of the business are de ned. T he team is con v inced that the four de ned chara cteristics are the k ey to the success, thou gh they m ay not be a com plete set. E v entu ally , the team has com e up w ith three areas that require adv ancem ent so that the abov e cha ra cteristics ca n be realized. T hey include m anu facturing technolog y , inform ation technolog y and product design ca pability . H ow ev er, the reserv ed fund is not adequate for all of them in the rst stage, in fact, on ly on e of them ca n be inv ested.

F igu re 3. Th e h iera rchy of ad v an cem ent inv est m en t.

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P ro ta bility 1 1 P riority v ec tor 0.5 0.5

T hu s, the team tries to prioritize these three aspects. A m atrix is therefore form ulated for each of the chara cteristics. F ou r m atrices are used to ev aluate the contrib ution of m anu facturing technology ( M T ) , inform ation technolog y ( I T ) and design technology ( D T ) to product cost ( C) , production or dev elopm ent lead tim e ( T ) , prod uct quality ( Q) , an d cu stom er serv ice ( S) . H ere, product cost refers to m aterial cost and direct labou r cost, w hereas production or dev elopm ent lead tim e refers to the tim e spent on the production oor. F igu re 4 show s the four m atrices. Since the w eights show n in the m atrices m ay not be con sistent, approxim ations that com pensate the inconsistency are com puted and result in the priority v ectors in the last colum n of the m atrices. T hese approxim ations are ob tained by norm alizing the geom etric m eans of each row , and the geom etric m eans are the n th root of the product of each colum n v alue, w here n is the num ber of alternatives. F or inst ance, the rst row s elem ents of the m atrix that evalu ates against cost are 1, 7 and 3. T he geom etric m ean is the cu bic root of the pro3 ( 1 * 7 * 3) = 2 . 76. H ence, the priority of duct, that is, M T is the norm alized v alue, i.e. 2.76/4.26 = 0.65. P riority v ectors for di erent characteristics are com pu ted similarly . H ow ever, it is ob serv ed that product cost, production lead tim e, product quality and custom er serv ice are contributing to m arket share increm ent and pro tability enhancem ent di erently . Sim ilarly , increasing m ark et

Com p a ny g row th M a rk et sh a re P ro t ab ilit y

M ar ket sha re 1 1

GM

F igu re 6. A H P p riorit y m a t rices for strat eg ies.

share and enhancing pro tability are contributing di erently to the goal, w hich is the com pany grow th. F igure 5 presents the priority v ectors of these chara cteristics against the tw o stra tegies w here the sam e procedure as abov e is applied. F igure 6 show s the priority of the tw o strategies against the com pany goa l, and gure 7 show s the priority of those chara cteristics. F inally , all the priorities are tak en ca re to arriv e at the prior ities of the alternatives to the com pan y grow th. A ll the priority v ectors are then integra ted by sum m ing up the w eighted priorities. T he nal priorities are show n in gure 8, w here m anu facturing technology is found to be the m ost im portant aspect for investm ent in the rst stage. I t shou ld be noted tha t this priority analy sis for the bene ts of alternatives is heavily based on subjective expertise judgem ent. A di erent environm ent and m anagem ent team m ay com e up w ith di erent results. The A naly tical H ierarchy P rocess m ethod has w eighted the con tributions of the alternatives to the goal. I n term s of cost and bene t analy sis, bene t indices
P riority v ect or 0.48 0.17 0.35

C MT IT DT

MT 1 1/7 1/3

IT 7 1 5

DT 3 1/5 1

GM 2.76 0.31 1.19

P riority vector 0.65 0.07 0.28

T im e MT IT DT

MT 1 1/2 1/2

IT 2 1 3

DT 2 1/3 1

GM 1.59 0.55 1.14

Q MT IT DT

MT 1 1/7 3

IT 7 1 5

DT 1/3 1/5 1

GM 1.33 0.31 2.47

P riority vector 0.32 0.08 0.60

S MT IT DT

MT 1 7 3

IT 1/7 1 1/5

DT 1/3 5 1

GM 0.36 1.48 0.84

P riority v ect or 0.13 0.55 0.32

F igu re 4. A H P p rior ity m a trices for a lterna t ives.

M a rk et sha re C Q T R

C 1 3 1/5 3

Q 1/3 1 1/7 3

T 5 7 1 7

S 1/3 1/3 1/7 1

GM 0.82 1.91 0.16 3.98

P riority v ec tor 0.12 0.28 0.02 0.58

P ro t a b ility C Q T R

C 1 1/3 1/2 1/5

Q 3 1 3 1/2

T 2 3 1 1/7

S 5 2 7 1

GM 3.11 1.26 2.19 0.24

P riority vect or 0.46 0.19 0.31 0.04

F igu re 5. A H P p riorit y m at rices for char ac terist ics.

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M a rk et sha re ( * 0.5) P rodu ct cost P rodu ct q u alit y P rodu ction lea d tim e Cu stom er serv ice 0.12 0.28 0.02 0.58 + + + + P ro t a b ility ( * 0.5) 0.46 0.19 0.31 0.04

Y ul iu C he n et al.

P riorit y v ec tor 0.29 0.24 0.16 0.31

F igure 7. Cha ra cter ist ics p riorit y ta b le.

paper, inform ation technology ca n lead to m ore sav in g than m anufacturing technology for the entire enterprise and this is re ected in A BC data. T he nal conclusion has pointed ou t the e ects of evalu ating intangible bene ts that over-ride the analy sis based on pure cost data. I n addition , there are other factors and ra tios that need to be considered as w ell to m ake a sound judgem ent on inv estm ent. R eturn on investm ent is on e of them , but on e ca n only ta k e ca re of the tangible aspect .

that are represented by the A H P priorities are de ned. T he cost indices w ill be de ned using the A BC m ethod . T he A BC m od elling m ethod discussed in the last sect ion ca n be app lied. F irst, cost com pon ents of inv estm ent of m anufacturin g technology , inform ation technology and design technology shou ld be determ ined. T hese cost com pon ents shou ld include the process costs on ce the particular technolog y is inv ested. H ow ev er, ca pita l cost m ay be left to the return on inv estm ent calcu lation. I t ca n reduce the possible bias ca used by the high ca pital costs. A fter the I D E F 0 hierarch ies as w ell as the cost hierarchies are built, the total cost ca n be com puted. F or instance, the total annual ru nning costs for the op erations w ith M T alone, I T alone and D T alone are 1.5, 1.1 and 2.1 m illion, the norm alized indices are 0.32, 0.23 and 0.45, respectively . Since the resulting A BC indices cov er the op erating costs, som e ta ngible bene ts w hich are saving in costs are already re ected. T o form com bined indices, w e m ult iply the A H P priorities by the reciprocals of A BC indices. T he nal com bined indices are 1.22, 1.09 and 0.8 for investing M T , I T and D T, respectively . I n conclusion , m anufacturing technology is the rst in the adv ancem ent agenda based on the abov e analy sis. T his ca lculation tak es into account the intangible bene ts by using A H P , and the tangible bene ts by using A BC. T he tangible bene ts ca n be explicitly highlighted w hen the cost is com pared w ith the existing cost data, such that the savings are uncov ered. I n fact, in som e cases, the results from A H P w ill be con sistent w ith the results from A BC. T hat is, the m ost favou ra ble alternative in A H P could incu r the least cost that is re ect ed in A BC ana ly sis. H ow ever, like the ca se in this

5. T he in ter connections betw een econom ic v iew and other v iew s

F rom the view point of system architecture, global analy sis and design m ust be ba sed on the consideration of all aspects and their interaction s. T herefore, it is necessary to clearly describe the interconnections betw een the econom ic view an d other view s. I t is ob v ious that this v iew has inherited the basic skeleton from function v iew , I D E F 0 m od el. I f som e function al activities have been found as non -valu e-added or little v alue added, the process inv olv ed w ith those activities w ou ld be put under consideration of BP R . T his is on e of the hints for im prov em ent s. T hen, resource v iew has, secondly , a direct link w ith econom ic v iew . R esource v iew w ill prov ide tw o sum m ary lists of both hum an resources and non hum an resourses needed. T hese tw o lists ca n be used to ca lculate the direct and indirect cost of inv estm ents. H ere, ev en som e `one to on e relationsh ips shou ld be established. F or som e expensiv e facilities, re-check ing of the necessity of inv estm ent w ill be suggested. U nless it is approved by the glob al consideration from top m anagem ent for stra tegic requirem ents by using A H P analy sis, som e further study shou ld be conducted to justify the inv estm ent. A s for inform ation, decision and organization v iew s, there are v ery little interconnection s w ith econom ic view.

6. C oncl usion

The m od elling analy sis of the econ om ic v iew is very im portant for industrial peop le to accept the CI M system

P rod u ct cost ( * 0.29) M a nu fa cturing techn olog y I n form a tion tech nolog y D esign techn olog y 0.65 0.07 0.28 + + +

P rod uction lea d t im e ( * 0.24) 0.48 0.17 0.35 + + +

P rod uct qu a lity ( * 0.16) 0.32 0.08 0.60 + + +

Cu st om er serv ice ( * 0.31) 0.13 0.55 0.32

P riority vect or 0.39 0.25 0.36

F igu re 8. Ov er all p riorit y of a ltern at iv es.

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architecture for their syst em integration. H ow ev er, the estim ation m ethod for intang ible factors w ou ld be the m ain ob stacle for its success. T his paper proposes a m odelling form alism com bin ing w ith application of A BC and A H P m ethod . I t w as dev eloped based on industrial experim ents. D ue to the space lim it, it is im possible to prov ide a real ca se in a short paper. On the other hand, this m ethod is still under developm ent. I t cou ld not be considered as a m ature thing. During application in different circum stances, correspon ding m od i cation s w ou ld be natura l. T he critical advice that the authors w ou ld like to propose is about the selection of team m em bers for cost/bene t estim ation . T hey m ust be experts in the eld in question and m anagers w ho k now the com petition env ironm ent of this enterprise w ell.

R efer ences

AMICE,

1993, C I M - O S A : O pe n S y ste m A r ch itecture f or C I M 1992 , W h at is CI M a rchitectu re ( in Ch inese) .

( Berlin : Sp rin ger V erla g ) .

Chen, Y., Chen, Y., Chen, Y.,

M a chine T ools , 3, 3 6. 1996 , A pra cticab le sch em e of CI M sy stem ar chit ect ure. I n L . M cGin n is et al . ( ed .) P ro cee ding s o f F A I M 6, A t lan ta , M ay 1996, pp . 621 632 ( N ew Y ork : Begell H ouse) . a nd

Xia Z.,

1991 , Social scien ce aspect of CI M .

C hina C I M 91 W ork sho p, Beijin g, China .

GRAI Laboratory, 1992, G I M M etho d ( lectu re n ot es) . Lewis, R. J., 1993, A ctivit y - b as ed C os ting f o r M ark eting
M a nuf act uring ( L on d on : Qu oru m Books) .

a nd

Saaty, T. L, 1980,

M ulticrite ria D e cis ion M a k ing : T he A naly tical

H ie rar ch y P r oce ss es ( M cG ra w -H ill) . William , T. J., 1992, P urd ue E nter pr ise R ef er ence A rch itectur e s ( I n st ru m ent Societ y of A m erica ) .