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Efficiency Investment Returns

Assembly Plant
Photo Credit: The Chrysler 200 Factory Tour, an interactive online experience using Google Maps Business View technology, takes consumers inside the new 5-million-square-foot Sterling Heights Assembly Plant for a behind-the-scenes peek at how the 2015 Chrysler 200 is built.
Figure 4.1 from NIST AMS 100-50: Cumulative Net Present Value by Percent of ACS Cost Categories

Manufacturers and manufacturing research organizations make investments to advance efficiency and competitiveness. Understanding the return for previously made investments can guide both manufacturers and researchers in identifying future investments with a high return. NIST AMS 100-50 examines trends in data from U.S. Department of Energy Industry Assessment Centers, which make technical assessments to reduce waste at small and medium sized manufacturers, to facilitate identifying potentially high return investments for manufacturers and researchers.

The results show the following:

  • The net present value is disproportionally distributed among investments (see Figure 4.1), where 20 % of the investment categories represent 82 % of the net present value (i.e., net benefits).
  • For individual investments, 20 % of the cumulative investment cost accounts for 74 % of the net present value.
  • Regression analysis identified those investments with a high return when controlling for a selection of factors. The results suggest:
    • Over time, the average Internal rate of return (IRR) decreases
    • Larger firms tend to receive higher IRR
    • Some investment categories tend to have higher IRR than others

The highest IRR investments were related to “bottleneck reduction,” “scheduling,” and “just-in-time” inventory.

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Created January 4, 2023, Updated November 7, 2023