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Efficiency Improvements in U.S. Manufacturing: Return on Investment for Small and Medium Establishments

Published

Author(s)

Douglas Thomas

Abstract

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. This paper 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 that the net present value is disproportionally distributed among investments, 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 that over time, the average Internal rate of return (IRR) decreases, larger firms tend to receive higher IRR, and 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. The highest concentration of net present value was found in "heat recovery" with the second highest concentration being in "cogeneration" and the third highest in "lighting." The most common high IRR investment type that was statistically significant in a regression analysis was related to "heat recovery" with the second relating to "space conditioning" and the third most common was related to "cogeneration."
Citation
Advanced Manufacturing Series (NIST AMS) - 100-50
Report Number
100-50

Keywords

manufacturing, return on investment, net present value, internal rate of return, efficiency

Citation

Thomas, D. (2022), Efficiency Improvements in U.S. Manufacturing: Return on Investment for Small and Medium Establishments, Advanced Manufacturing Series (NIST AMS), National Institute of Standards and Technology, Gaithersburg, MD, [online], https://doi.org/10.6028/NIST.AMS.100-50, https://tsapps.nist.gov/publication/get_pdf.cfm?pub_id=935834 (Accessed February 22, 2024)
Created November 10, 2022, Updated November 29, 2022