Manufacturing strategy analysis: Models and practice

In this paper the authors examine the relationship between manufacturing strategy and cost modeling. Combining activity-based accounting and mathematical programming concepts, they define a structure and specific production cost functions for use in quantitative facility strategy models. The cost functions explicitly consider economies of scale and diseconomies of scope. The authors incorporate these cost functions into optimal facility network design formulations, and they use the resulting models as a basis for assigning individual facility charters and supply chain network structures. This modeling process has been used extensively at Hewlett-Packard Company. A case study is included.