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Third International Conference on Production Research Americas Region 2006 (ICPR(ICPR-AM06) IFPR ABEPRO - PUCPR - PPGEPS
INVESTMENT ANALYSIS OF THE CAD/CAM/CIM/CAE/CAL TECHNOLOGIES IN SHIPBUILDING INDUSTRY
Burak mer SARAOLU, MS. UM Maritime Corporation, Kocaeli, TURKEY - buraks@umdeniz.com Stk GZL Istanbul Technical University, Faculty of Management, Macka, 34367 Istanbul, TURKEY - gozlus@itu.edu.tr Abstract: In todays increasingly competitive world shipbuilding markets, firms have been forced to be more flexible, more responsive to customer needs, more capable to adapt to rapidly changing conditions, to reengineer their products, to empower employees, to get lean, and at the same time to maintain low cost, good quality, and customer satisfaction. One way to achieve so many different objectives, which conflict with one another, may be to effectively use technological advances. Firms in shipbuilding industry have endeavored to acquire and implement technologies such as CAD, CAM, CIM, CAE, and CAL increasingly over the last 20 years. For investment decisions of these technologies, shipbuilding industry has difficulties in evaluation. The objective of this paper is to focus on the acquisition of equipment and systems of the CAD/CAM/CIM/CAE/CAL technology and to gather practical information of the investment analysis for CAD/CAM/CIM/CAE/CAL performed in shipbuilding industry by getting responses for some questions concentrated on intangible and tangible assets. A case study was conducted to gather information and support the study. Finally, a detailed procedure for CAD/CAM/CIM/CAE/CAL technologies investment in shipbuilding industry is proposed in this study. Key Words: CAD/CAM/CIM/CAE/CAL, shipbuilding, investment, technology 1. Introduction In todays increasingly competitive world shipbuilding markets, firms have been forced to be more flexible, more responsive to customer needs, more able to adapt to rapidly changing conditions, to reengineer their products, to empower employees, to get lean,
and maintain low cost, good quality, and customer satisfaction. Customers of any product in shipbuilding industry demand high quality products that are delivered on time in affordable prices. One way to achieve so many different objectives, which conflict with one another, may be to effectively use technological advances not only in the production stages but also in design and engineering stages. The firms in shipbuilding industry have tried to acquire and implement technologies such as CAD/CAM/CIM/CAE/CAL. For investment decisions of these technologies, shipbuilding industry has always difficulty in evaluating different kinds of technologies. The decisionmaking in such issues is also very difficult in other industries. Clemons clearly indicated: many decisions that clearly appeared to have been correct from today's perspective had been neither easy nor obvious at the time that they had been reached. (Clemons, 1991). The reason, which makes these decisions difficult, is the inappropriateness of available techniques with respect to the needs of current practice. When costs and risks are high enough in investment decisions, managers attempt to decide as late as possible until the last analysis is complete. In many cases the last analysis completion and the estimation is finalized later than the decision making instant so that the precise or certain numbers will never be known, and the calculations will be ambiguous to enable the executive to take action without any risk for the firm and to his or her career. Clemons defined in his paper five-risk groups in Information Technology, which are also accepted at interviews by the shipbuilding industry decision makers in this study. These are financial risks, which can not be afforded by firms; technical risk, which must be abstained; project risk, which are caused by delays; functionality risk, which is caused after the project completion with the unsatisfactory results of systems or product, and systemic risk which is caused if all assumptions on costs and benefits are outdated (Clemons, 1991). Functionality risk is what the user gets is not what the user wants, or the environment has changed so fast during the production and development that the system is no longer functionally suitable. These major risk groups cause complexities in managing CAD/CAM/CIM/CAE/CAL investments in shipbuilding industry. After the decision is made, re-evaluation and redesign of the investment program and periodic monitoring is required during each phase of investment. The objective of this paper is to focus on the acquisition of equipment and systems, which embody the CAD/CAM/CIM/CAE/CAL technologies in shipbuilding industry.
2. Theoretical Background The study was carried out in 2005 and 2006 and started with a review of previous research. Surprisingly no previous literature could be found directly related to investment analysis of the CAD/CAM/CIM/CAE/CAL technologies in shipbuilding. Retrospective search in international databases provided meager results on the subject. Ten conspicuous electronic databases since 1980 were reviewed for research on this subject. The reviewed databases were ABI Inform Global, ACM Digital Library, ACM Portal, BlackwellSynergy, Directory of Open Access Journals, IEEE/IEE Electronic Library, Science Direct, Springer Link, Taylor & Francis Journals, and Wiley Interscience. In the literature, there are two discrete forms of technology investment studies. The first one is investing in the development of new products and processes such as CAD/CAM/CIM/CAE/CAL and IT software development etc. The second one is the acquisition of equipment and systems, which embody the new technologies such as CAD/CAM/CIM/CAE/CAL and IT hardware acquisition etc. This research is focused on the second group because of the nature of the shipbuilding industry. The references with numbers from two to seven Lowe (1995), Byrd (2000), Hefferan et. al. (2000), Koay et. al. (2005), Bensaou, Coldrick et. al. (2005), could be group in the first category and the references with numbers from papers eight to twenty seven Ardagna et al. (2004), Huang (1998), Gardner et. al. (1992), Palvia (1997), William, Chen et al. (2006), Li and Ye (1990), Wijayaratne, Apostolopoulos and Pramataris (1997), Sriram and Stump (2004), Beetz, Balasubramanian et. al. (2000), Byrd and Marshall (1997), Powel (1994), Mercken and Milis (2004), Brynjolfsson and Yang (1999), Davis and Palmer (2005), Borgonovo and Peccati (2004), Rai et. al. (1997), Nixon (1995) could be group in the second category.
One of the noticeable studies by Andresen (2001) focused on the technology evaluation methods (Andresen, 2001). Andresen (2001) described five case studies in the Danish Construction industry companies for analyzing technology evaluation methods, which had been used to complete cost and benefit assessments. In that paper, there was also a comparison on measuring the benefits of IT innovation. The first case study of Andresens study was upgrading to AutoCAD 2000, the second one was implementation of documentum workspace, the third one was about the usage of project webs, the fourth was about the choosing project webs, and the fifth was about
CITRIX application. After completing the five case studies in the Danish firms, it was proved that net present value had a negative value. On the other hand, the information economics and measuring the benefits of IT innovation methods provided a positive output. The last method investigated in the study was a critical success factor, which was proved to be a less useful one because of the format of the output. These four methods are grouped under three major groups such as financial, multi criteria approach, and exploratory. Net Present Value method was included in the financial method, measuring the benefits of IT Innovation and information economics was included in the multi criteria approach method, and the critical success factors were included in the exploratory method. In the paper, a table was presented to show the methods output, measurement unit, and description in summary (see Table 1) (Andresen, 2001).
Table 1. Description of the outputs for IT evaluation methods Source: (Andresen, 2001)
Another significant paper summarized in this chapter was the study of Apostolopoulos and Pramataris (1997). They have developed a methodology, which enables to evaluate the investments of information technology. The methods used for the evaluation of investments investigated in their study were presented with help of a table as shown below (see Table 2) (Apostolopoulos and Pramataris, 1997).
Table 2. Investment evaluation methods Source: (Apostolopoulos (Apostolopoulos and Pramataris, 1997).
The last paper, which examined the approaches used for evaluation of IT investments, was presented by Love et al. (2005),. They conducted a survey, which was sent to several Australian construction organizations. After gathering data from their survey, they developed a pragmatic framework for construction organizations IT ex-ante evaluation process as shown below (see Figure 1). They concluded that the discounted cash flow methods were the primary methods in Australian construction organizations to evaluate IT investments. In their framework the importance of stakeholders in the evaluation exercises and proposes was taken into account.
Figure 1. A framework for construction organizations IT evaluation Source: (Love et. Al., 2005) 2005)
In the literature there are two discrete forms of technology investment. The first is investing in the development of new products and processes such as CAD/CAM/CIM/ CAE/CAL technology development; the second is the acquisition of equipment and systems, which embody the new technologies such as CAD/CAM/CIM/CAE/CAL. Furthermore in literature while some authors concentrated on tangible or intangible
assets, some directly used simple economic methods, some used methods such as the balanced scorecard to evaluate technology investment (Mercken and Milis, 2004), some concentrated deeply in financial markets calculated abnormal returns for evaluation purposes (Brynjolfsson and Yang.,1999), and some investigated the R&D technology investment (Coldrick et. al, 2005), but none of them scrutinized the CAD/CAM/CIM/CAE/CAL technologies investments in detail. This research is probably the first, which focused on the investment analysis for the CAD/CAM/CIM/CAE/CAL technologies employed in shipbuilding industry. 3. Methodology A case study was accomplished to gather information and support the findings. The selected firm has established an International Joint Ventures with European firms, which all over the world becomes a common way to form strategic alliances. The firm chooses a global strategy to create International Joint Ventures to grow faster, to increase capital by sharing, to adopt new technology, to improve human resources, to share risks, and to get rewards.
The survey method, which is an appropriate, systematic way to support study, is shown below. (See Figure 2) In the survey, questions related to the benefits, both tangible and intangible of the CAD/CAM/CIM/CAE/CAL technologies or the costs of undertaking the CAD/CAM/CIM/CAE/CAL investment program are asked. First of all, the firm is selected to conduct the case study. The purpose of the first visit was only to gather general overview information. As a result of the literature search, sufficient knowledge and information had been acquired to offer the firm a procedure for CAD/CAM/CIM/CAE/CAL investment decisions. The offered procedure is based on the study of Love et al. entitled, An IT investment framework for construction organizations (Love et. al., 2005). Questions were prepared on data collection forms to use as a guide during interviews.
Figure 2.The Graphical Overview of Survey
On the forms such as presented in Figure 2, the questions and answers are seen. In each interview cycle, these forms were used to track a scientific and systematic path of study. The interviewers were in different positions of the joint venture firms such as project manager of the piping company, which is a joint venture of a Turkish shipyard and a European engineering firm. In addition to these interviews, there was a remarkable number of interviews with some suppliers and subcontractors of these joint ventures. The questions started with a general scope, such as the
CAD/CAM/CIM/CAE/CAL technologies investment, provided an opportunity to the facility flexibility in scheduling operations/manufacturing to detail scope such as what kind of methods for the technology investment analysis were preferred. After the interviews, the obtained responses in the forms were combined to form the case study and there were totally sixty questions and answers. decisions was modified and presented. 4. Findings Of The Study And Discussion In shipbuilding industry, technology related investment analysis is done for a period of years, depending on the technology type such as cutting or bending, the range of investment period changing four to ten years. In the case study, it is clearly underlined that comparing with other technology investments, CAD/CAM/CIM/CAE/CAL technologies investment period, which is at most six years on Powels paper (Powel, 1994), is not more than four years in shipbuilding industry because of the fast everchanging characteristics of this technology. In cost estimations decision makers also consider the initial training cost including opportunity cost of personnel not being at the work site. In interviews, the most common disagreement was the efficiency gain time and the efficiency rate of the CAD/CAM/CIM/CAE/CAL technologies. In the first implementations, the time required to produce the work in expected quality is doubtfully like the current technology because of familiarity factor. The general opinion of managers is after adapting the new selected technology, the design time and preparation time of production and installation drawings and performing engineering tasks will be less costly than current applications. The common view of the interviewers on the efficiency increase is 8 to 1 for the output, which is between the ranges defined in Powels study (Powel, 1994). In estimating the cost and performing the analysis, one of the critical points mentioned almost by all managers is the downtime of the CAD/CAM/CIM/CAE/CAL system. Although the downtime was not less than 10% in the literature, it is found in these interviews that the downtime estimation of the CAD/CAM/CIM/CAE/CAL technologies is only 5% in shipbuilders. The training for this technology will be on a continuing basis. A 10% loss is expected because of training, which is considered as an unproducible time of the designers time. The most critical point in the investment analysis is not only the cost but also the number of hours used in the new systems, which should not exceed the number of hours required in current After having collecting and analyzing all data, the offered procedure for the CAD/CAM/CIM/CAE/CAL investment
technology. None of the interviewers is sure about the cost reduction in total design cost. On one hand reduction in calendar time, increased quality and appropriateness in the engineering design, reduced production cost due to fewer mistakes and design problems will be accomplished, but on the other hand highly talented and high educated personal requisition, high end hardware, software and equipment will be required. Hence, decision makers or managers in shipyards not only focus on tangible assets but also intangible assets. In this case study, a detailed procedure for the CAD/CAM/CIM/CAE/CAL technologies investment in shipbuilding industry is proposed as below (see Figure 3). This procedure is based on Loves framework (Love et. al., 2005) and Lambs shipyard shipbuilding work structures definitions (Dougherty et.al., 1997) moreover supported in other literature review papers and results of interviews.
Figure 3. CAD/CAM/CIM/CAE/CAL Technologies Investment Procedure in Shipbuilding Industry Industry
In the survey, it has been realized that the decision makers for the technology investment can be divided into two groups that consider tangible benefit (return on investment, payback period etc.) such as CFO and CEO, and that consider intangible benefits (integrate in global operations, rapid implementation etc.) such as CEO, Chief Design Engineer. The findings of the survey have revealed that many factors influence the investment decisions. Hence, especially before performing any technology investments a detailed analysis should be carried out utilizing either non-economic methods or economic methods such as internal rate of return, payback period, and net present value. The risks of investment for new technology sometimes might risk the managers careers in shipbuilding industry. In shipbuilding industry it is described as advantages gained whenever technology pulled instead of pushed by technology. The technology investment is more change-resistant as compared to other sectors. The decision makers in shipbuilding are required to keep in mind the following: (a) Strategic considerations such as performance objectives, long term costs and benefits; (b) Tactical considerations such as performance indicators; (c) Operational considerations such as user perception; (d) Intangibles such as quality improvement, good image, customer relationship improvement; (e) Tangible considerations such as financial (budgets, product cost etc.) and nonfinancial (lead time etc.). 5. Conclusion Nowadays, the goal of many shipyards is to capture a high-level assessment tool, which helps to analyze the emerging technologies that are currently available or are feasible in the near future. Shipyards need a descriptive way in the technologies that they are interested in. The investments nowadays in shipbuilding industry are booming because of the shipping industry demands. Investment decisions cannot be taken easily because they are influenced by many factors. Especially, technology investments should be studied in detail. The risks sometimes risk the managers careers. In shipbuilding industry the investment is more change resistant than other sectors. However, shipyards have to make investments to stay on the competitive site.
One of the key drivers of competitiveness is the CAD/CAM/CIM/CAE/CAL technologies. The procedure presented in this study is a generic type and can be adapted to other yards easily. Moreover, the procedure will assist shipbuilding companies to adopt new CAD/CAM/CIM/CAE/CAL technologies in their organizations. 6. Limitations And And Future Research The following suggestion for future research is the extensions of the current study. The contribution of interviews is only limited with an International Joint Venture firm, not related to the world shipbuilding industry so that the procedure does not represent the entire shipbuilding industry. Hence, it should be accepted as a global or generic procedure.
Acknowledgments;
The authors would like to thank sincerely for their contribution to the introduction of the research issue and as well as sponsoring and supporting the research UM Deniz Sanayi A.. (UM DENIZ SANAYI A.S. Sepetli Pinar Mahallesi Yenikoy-Kocaeli/Turkey, Postcode/ZIP: 41275, Tel: +90 262 3413401 Fax: +90 262 3413405), which is a leading first-class shipyard known to produce and develop new maritime products at the highest technological level with considerations of safety and the environment.
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Third International Conference on Production Research Americas Region 2006 (ICPR(ICPR-AM06) IFPR ABEPRO - PUCPR - PPGEPS

INVESTMENT ANALYSIS OF THE CAD/CAM/CIM/CAE/CAL TECHNOLOGIES IN SHIPBUILDING INDUSTRY

Figure 2.The Graphical Overview of Survey

Figure 3. CAD/CAM/CIM/CAE/CAL Technologies Investment Procedure in Shipbuilding Industry Industry

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