From Static To Dynamic Costing: Managing External Volatility and Evaluating Supply Chain Configurations in MTO Manufacturing
Journal
Conference on Production Systems and Logistics
ISSN
2701-6277
Type
conference paper
Date Issued
2026
Author(s)
Abstract
Manufacturing firms face growing exposure to volatile and uncertain global markets. Particularly in make
to-order (MTO) environments involving complex, large-scale machinery and equipment, long project lead
times amplify the impact of external cost fluctuations on competitiveness and profitability. To date, limited
attention has been given to how firms can systematically integrate dynamic external market factors into
early-stage project costing. This study addresses this gap through an in-depth single case within the Swiss
mechanical engineering industry. Using a Design Science Research (DSR) approach, a conceptual
framework and cost prediction tool were developed to capture the effects of dynamically changing cost
factors - such as wages, exchange rates, and material prices - on distinct cost components, including in-house
production, external devices, and service activities. The framework was operationalized in a dynamic cost
model employing exponential smoothing (Holt-Winters) time-series forecasting based on monthly historical
data. The findings demonstrate that exchange-rate fluctuations and regional cost differentials can materially
alter projected project margins and reshape the relative attractiveness of alternative production locations and
associated supply chain configurations. This study contributes to the literature on MTO costing and adaptive
supply chain configuration under uncertainty by showing how external market volatility can be
operationalized within early-stage decision processes. For practitioners, this tool provides early cost
transparency and supports the evaluation of alternative supply chain configurations and pricing decisions.
to-order (MTO) environments involving complex, large-scale machinery and equipment, long project lead
times amplify the impact of external cost fluctuations on competitiveness and profitability. To date, limited
attention has been given to how firms can systematically integrate dynamic external market factors into
early-stage project costing. This study addresses this gap through an in-depth single case within the Swiss
mechanical engineering industry. Using a Design Science Research (DSR) approach, a conceptual
framework and cost prediction tool were developed to capture the effects of dynamically changing cost
factors - such as wages, exchange rates, and material prices - on distinct cost components, including in-house
production, external devices, and service activities. The framework was operationalized in a dynamic cost
model employing exponential smoothing (Holt-Winters) time-series forecasting based on monthly historical
data. The findings demonstrate that exchange-rate fluctuations and regional cost differentials can materially
alter projected project margins and reshape the relative attractiveness of alternative production locations and
associated supply chain configurations. This study contributes to the literature on MTO costing and adaptive
supply chain configuration under uncertainty by showing how external market volatility can be
operationalized within early-stage decision processes. For practitioners, this tool provides early cost
transparency and supports the evaluation of alternative supply chain configurations and pricing decisions.
HSG Classification
contribution to scientific community
Refereed
Yes
Start page
488
End page
497
Pages
10
Subject(s)
Division(s)
File(s)![Thumbnail Image]()
open.access
Name
Proceedings_of_the_Conference_on_Production_Systems_and_Logistics-CPSL_2026.pdf
Size
59.69 MB
Format
Adobe PDF
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