Improving manufacturing performance through process change and knowledge creation

A model is introduced to guide a profit maximizing firm in its quest to enh ance performance through process change. The key benefit sought from proces s change is a long term increase in effective capacity. However, realizing success from process change is not trivial. First, while process change may increase effective capacity in the long run, the disruptions during implem entation typically reduce short term capacity. Second, competitive forces s uch as decreasing revenue streams and shrinking product life cycles complic ate the implementation of process change. Third, while knowledge may enhanc e the ultimate benefits derived from process change, the correct timing and means of knowledge creation are difficult to discern. Lastly, a variety of trade-offs must be evaluated when selecting the particular process change to pursue. For example, choices range from hardware and software replacemen ts to modification of manufacturing procedures. The model introduced here explicitly considers both the short term loss due to disruption and the long term gain in effective capacity associated with the process change. In addition, investments in the accumulation of knowle dge are investigated for their potential to enhance process change effectiv eness. Knowledge is generated from investment in preparation and training ( learning-before-doing) and as a by-product of process change (learning-by-d oing). Analysis of the model provides managerial recommendations for severa l key decisions relating to process change implementation including: (i) th e selection of an appropriate process change alternative, (ii) the rate and timing for investment in process change, and (iii) the rate and timing for investment in preparation and training. New results are reported reflectin g the important relationship between process change and knowledge. For exam ple, we show that under certain conditions, a firm should optimally delay i nvestment in process change until sufficient accumulation of knowledge is a chieved. More generally, we identify conditions whereby investment in proce ss change occurs at an increasing rate over time. This result is particular ly important since it demonstrates a limitation of the existing literature where process change always occurs at a decreasing rate.