Evaluating the substitution risk of production systems in volatile environments

Today’s manufacturing companies are confronted with key challenges such as an increasing individualization and shorter product life cycles. Production systems are to be made resistant to substitutions in order to secure sustainable competitive advantages in such a volatile market environment. A production system runs at risk of being substituted if an alternative production system exists, which is at least equivalent in terms of economic, ecologic, social, and technological criteria with respect to current as well as possible future product programs. The research presented in this paper provides a systematic approach to assess the substitution risk of production systems regarding a current as well as possible future product programs. It comprises a methodology, which allows for a static and dynamic evaluation of production systems based on analytical cost models, scenario creation and real options analysis. By implementing a Monte Carlo simulation, various probability distributions of system parameters can be taken into account. The presented methodology focusses on economic and ecologic aspects. Finally, the methodology is applied to a case study.