Showing papers on "Capacity utilization published in 1996"

A framework for analyzing changes in strategic performance

Abstract: In this paper we present a framework for analyzing changes in strategic performance Traditional measures for comparing the strategic performance across firms or over time have been return on investment (ROI) and its component ratio, return on sales (ROS) We decompose the ROS ratio into four separate ratios that capture the impact of changes in a firm's productivity, price recovery, product mix and capacity utilization on its profitability These ratios help to highlight the micro sources of strategic success or failure They can be used to assess changes in the performance of a firm compared to itself over time, or to other firms in its industry group This framework can also be used to evaluate changes in the dynamic performance of an industry as a whole We illustrate the use of these ratios with a 4-year analysis of the performance of a large manufacturing company We also demonstrate how the technique can be applied to an industry with an evaluation of the performance of US telecommunications firms between 1975 and 1987, a period during which the industry experienced a progressive increase in competitive pressure

The performance of de novo private firms in Russian manufacturing

Abstract: This paper considers the current performance and future prospects of newly-established private manufacturing firms in Russia, using information gathered in a mid-1994 World Bank survey of 439 Russian industrial firms, including forty-odd de novo private firms. The paper finds that in terms of most performance indicators, de novo private manufacturing firms look significantly better than their state-owned and privatized counterparts. They are actually growing rather than contracting, operating at higher levels of capacity utilization, expanding employment rapidly, and investing more. Their outlook for future performance is similarly more positive, with higher expectations for growth of output and employment, and more planned investments. In most cases these differences appear to be inherent to the de novo character of the firms and cannot be attributed to their size, location, or the industrial sector in which they operate. The paper concludes with a discussion of the role which these dynamic enterprises are likely to play in the recovery of the Russian economy.

Environmental policy and the choice of production technology

Abstract: It is often claimed that environmental taxation is a good policy instrument to reduce polluting emissions. The main argument is that emission taxes induce firms to adopt a cleaner production technology. The new technology, characterized by a lower emission/output ratio, becomes profitable, i.e. it is adopted by the firm, because taxes raise the operating costs of the original technology. However, emission taxes generally lead firms to reduce output and to raise prices1, thus reducing consumers’ surplus and possibly employment (this latter effect depends on the degree of substitutability of production factors, on the degree of competitiveness of the labour market, and on the way in which the tax is recycled; these issues are analyzed in Carraro-Galeotti-Gallo, 1994).

A Note on Holding Excess Capacity to Deter Entry in a Labour-Managed Industry

Abstract: In this paper, J. Zhang's (1993) investigation on whether an established labor-managed firm carries capacity that would be left idle if entry did not occur is reconsidered. To analyze the use of excess capacity as an entry deterrent, the author presents an extended model with a general constant-returns-to-scale production function instead of the Leontief production function assumed by Zhang. It is shown that the result of Zhang that the labor-managed firm LMF carries excess capacity also holds for the constant-returns-to-scale production function. Furthermore, the author examines the global stability of the labor-managed firm postentry Nash equilibrium.

A Theory of the Capacity Utilization/Inflation Relationship

Abstract: A neoclassical theory presented here explains the relationship between capacity utilization and inflation. The theory shows how technology shocks, when accommodated by money growth, are an important source of positive comovement between inflation and utilization. By contrast, energy price shocks and exogenous changes in money growth cause opposite movements in inflation and utilization. The theory is successful in capturing the average correlation between utilization and inflation manifested in the U.S. data.

Capacity constraints and export performance: theory and evidence from Belgian manufacturing

Abstract: A mark-up model for export and domestic pricing is developed using the dual approach of cost functions and taking explicitly into account the possibility of (short-run) capacity constraints. The model is applied on a panel of Belgian firms to infer product market power on both domestic and export markets, as well as to estimate the effect of export activity on the firm technology and pricing, through the effect of cost flexibility and capacity utilization. Copyright 1996 by Blackwell Publishing Ltd.

A theory of the capacity utilization/inflation relationship

Abstract: A neoclassical theory presented here explains the relationship between capacity utilization and inflation The theory shows how technology shocks, when accommodated by money growth, are an important source of positive comovement between inflation and utilization By contrast, energy price shocks and exogenous changes in money growth cause opposite movements in inflation and utilization The theory is successful in capturing the average correlation between utilization and inflation manifested in the US data

Overall equipment effectiveness (OEE) and cost measurement [semiconductor manufacturing]

Abstract: Total Productive Maintenance (TPM) has provided a new perspective on semiconductor manufacturing. The need to improve performance requires more focus than ever on the TPM metric of Overall Equipment Effectiveness (OEE). Investigation of this data with a productivity analysis framework called the Capacity Utilization Bottleneck Efficiency System (CUBES) identifies and prioritizes productivity inefficiencies with their accompanying tool capacity decreases. A proposal for an extension of the CUBES to reflect cost measurement associated with these inefficiencies is discussed.

Capacity utilization under dynamic profit maximization

Abstract: Empirically implementable measures of optimal capacity utilization are developed from the dynamic profit maximization perspective. The primal measure is based on behavior of the firm's supply along an optimal path to the steady state. The dual measure is based on the behavior of the dynamic value function in the stock of the quasi-fixed input. Rates of optimal capacity utilization are estimated for the U.S. food processing and distribution sector over the period 1948–1991.

Viability of Traditional Banking Activities: Evidence from Shifts in Conduct and Excess Capacity

Abstract: This paper applies modem statistical techniques to estimate levels and shifts of market conduct and aggregate excess capacity in the provision of traditional US banking products such as loans and demand deposits. A variety of models indicate that loans are competitively supplied, with no obvious excess capacity as defined. Some models indicate an anticompetitive shift in demand deposits after 1984, but other evidence suggests that this result may be an artifact attributable to the growth of NOW accounts, MMDAs, and the like. All results suggest that the current levels of these services can be profitably sustained under current market conditions.

OVERALL EQUIPMENT EFFECTIVENESS (OEE) and COST MEASUREMENT

Abstract: Total Productive Maintenance (TPM) has provided a new perspective on semiconductor manufacturing. The need to improve performance requires more focus than ever on the TPM metric of Overall Equipment Effectiveness (OEE). Investigation of this data with a productivity analysis framework called the Capacity Utilization Bottleneck Efficiency System (CUBES) will identify and prioritize productivity inefficiencies with their accompanying tool capacity decreases. A proposal for an extension of the CUBES to reflect cost measurement associated with these inefficiencies is discussed.

The effect of yield management on railroads

Abstract: Although on-time delivery is critical in today's competitive marketplace, railroads are not usually able to provide consistently reliable freight service. Railroads attempt to offer a low-price product by minimizing their costs and maximizing their asset utilization; strategies which do not support on-time performance. This paper explores the use of yield management to segment the railroad market into high-priority, premium priced freight or low-priority, low priced freight. Through market segmentation, railroads can move from pure cost-minimization to a more service focused strategy. Using yield management to smooth demand will decrease the need for excess capacity (reduce costs) and at the same time improve service.

Capacity utilization as a real-time predictor of manufacturing output

Abstract: In this article, Evan F. Koenig demonstrates that the Federal Reserve Board's initial estimate of manufacturing capacity utilization is helpful in predicting subsequent growth in manufacturing output. Together with lagged real-time output growth and growth in the composite index of leading indicators, capacity utilization explains more than 50 percent of the variation in output growth at a four-quarter horizon. Based on data available at the beginning of the year, the forecasting equation predicts little or no growth in manufacturing output during 1996.

The optimization of capacity utilization with a fuzzy decision support model

Abstract: The assembly of cars is a production process, regulation of which depends on a series of disturbances and fluctuations that often arise in such processes. The assembly is carried out at various assembly stations connected in series, where specialized teams of workers are occupied. Depending on the model variant, each model that passes the assembly area creates a different workload at the individual assembly stations. The order of the model transport into the assembly area is very important for the degree of utilization of capacity at the assembly stations. The problem is to fix the order in such a way that the utilization of capacity is as constant as possible and as near to 100% as possible, in order to guarantee a cost-saving assembly regarding long-termed production plans. The paper presents an industrial used application of a fuzzy decision support model to the supervision of capacity optimization in the assembly process of cars.

Rough cut capacity planning in a learning environment

Abstract: The area of capacity planning is receiving increased emphasis in the management of operations due to the financial benefits of efficiently utilizing capacity and to the importance of accurate capacity plans for use with material requirements planning (MRP) and other information-oriented planning systems. Most of the prior research in capacity planning has been limited to improving capacity management techniques that assume a constant level of productivity. But it has been shown in past empirical research that many firms exhibit productivity improvements, or learning, as more units are produced. These productivity improvements are usually associated with a learning process-human, technological, or organizational-and have been measured by logarithmic functions known as learning curves. When companies exhibit this learning process in the use of their capital or human resources, the capacity planning methodology used should consider the effects of future productivity improvements on capacity utilization. This paper presents an overview learning curve analysis (LCA) for rough-cut capacity planning and illustrates the effective use of learning curves for capacity planning through a comparison of traditional approaches with ones that incorporate the learning curve concept.

Managing Capacity in Basic Materials

Abstract: Cyclical markets aren't the enemy - you are A new model suggests counter-strategies Modernize in an upturn, buy capacity in a downturn Sectors growing at 2 to 3 percent may be the best bet Most basic materials industries share a common problem: low profitability. In steel, pulp and paper, glass, and commodity chemicals, to name a few, periods of high profits alternate with heavy losses, yielding average returns that may not even cover the cost of capital. Many accept this rollercoaster ride as inevitable; such, they say, is the nature of cyclical industries. But the truth is, poor management makes the ride rougher than it need be. For though there is indeed a business cycle, its peaks and troughs are greatly exaggerated by decisions about when and how to add new capacity. Take the paper industry. From 1991 to 1993 it experienced its worst years ever: high losses forced more than half the companies in some sectors to put assets up for sale. The crisis was not precipitated by a dramatic drop in demand; rather, it was massive new investments and overcapacity that caused the collapse in prices. Yet just three years later, and less than one year into recovery, new capacity additions amounting to as much as 15 to 20 percent of total output have already been announced in some segments, and many players are actively looking for new investment opportunities. Every company will have its own good reasons for the timing of new investments. Cash shortages and debts prevented us investing earlier; if we delayed, we would miss out on market growth; or simply, our machinery is out of date. Whatever the reason, the effect is waves of mass investment, which will inevitably drag the industry down toward its next slump. By improving their management of capacity, companies can smooth out the business cycle and moderate its impact on returns. To do so, they will need financial muscle and the courage not to follow the pack. Such companies can earn substantial rewards. A recent study reveals that excellent capacity management can boost average annual returns on invested capital by as much as 3 to 4 percent. Decision dynamics If they are to make sensible decisions about new capacity, pricing, or even capacity cutbacks, companies must understand the ripple effects of both their own and their competitors' actions. This is particularly true of industries where the construction of new capacity can take three or four years. A company investing in a major new plant today might reasonably expect a profit, given current forecasts for demand, supply, and pricing. But if competitors also invest in capacity at the same time, utilization will be lower than expected when the new machinery eventually comes on stream. And in another two years, prices are likely to start falling as overcapacity gives rise to a battle for market share. Far better, then, to try and take account of the underlying dynamics of the business environment. That means factoring in not only how market conditions might change in the interval between the decision to build a new machine and full production, but also the role played by less tangible forces. In good times, when capacity utilization is high, cashflows are healthy, and banks are willing to lend, a widespread sense of optimism often encourages investment. Technicians will lobby for new machines that outperform the old; salespeople will complain about revenues lost through lack of capacity. On the other hand, in bad times, investments tend to be shunned; no cash is available and no one wants to predict when the upturn will come. Whatever the scenario, the extremities of the underlying business cycle are exaggerated. Bearing in mind influences like these, we built a simulation model to see how a company in one growing and cyclical business, the European woodfree coated paper sector, could improve its capacity management and hence its financial performance. …

Why Minimills Give the US Huge Advantages in Steel

Abstract: Performance, not overcapacity, has been the real cause of industry problem Full costs for mini-sheet hot band? $275 per net ton Look for another wave of restructuring Without doubt, the minimill revolution has had profound and lasting effects on the world steel industry. Minimills - small-scale steel plants embodying a superior technology and, more importantly, more streamlined management processes - emerged more or less simultaneously in the United States, Southern Europe, and Japan in the 1950s. Despite a limited product range, minimills grew to more than 20 percent of production in all these regions by 1990. Such plants were still, however, precluded for technical reasons from participating in steel's largest market - the sheets used in automobiles, containers, and other major markets. This changed with the commissioning of Nucor's Crawfordsville, Indiana plant in 1989. The success of this facility initiated a surge of new ones that are revitalizing the US steel industry. By the end of this decade, world-class mini-sheet plants will represent more than 25 percent of US hot-band capacity. By 2000, almost 60 percent of American sheet capacity will be highly competitive by international standards, up from less than 20 percent in the early 1980s - an extraordinary turnaround. In stark contrast, Europe and Japan have adopted this new production process at a glacial pace. All told, there are around 10 million net tons of mini-sheet capacity operating in North America, Europe, and Japan, most of it representing the "compact strip production" (CSP) technology used by Nucor and developed by the German equipment supplier SMS. More than three-quarters of this capacity around 8 million tons - is in North America [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. Of this, roughly 6 million tons have been installed within the past two years. By comparison, the sole facility in Europe, Finarvedi's Cremona plant, began operations in 1992, as did Japan's only facility, Tokyo Steel's Okayama plant. The North American lead in this technology is likely to persist for at least the rest of the 1990s. Firm announcements - investments that are either already under way or apparently backed by sound financing - suggest that at least another 8 million tons of mini-sheet capacity will have been installed in North America by the end of the decade. This compares with 2 million additional tons in Europe and none in Japan. North America will thus be home to more than 80 percent of the developed world's mini-sheet capacity until at least the end of the century [ILLUSTRATION FOR EXHIBIT 2 OMITTED]. Given the competitive advantages enjoyed by such facilities, slow adoption by European and Japanese producers is bound to create problems for those industries in the future. A seminal technology The fundamental benefits of the thin-slab process used in mini-sheet plants over conventional integrated steel production are undeniable. It offers tremendous savings in capital, overwhelmingly the most critical challenge facing traditional steelmaking technology. It reduces operating costs by at least as much as the two other seminal steel innovations of the postwar era, the basic oxygen process and continuous casting. And it creates incentives for further innovation, thus helping to revamp steel production processes. Saving capital and operating costs Thin-slab casting solves the principal problem facing integrated production techniques: investment requirements that are not supported by market prices. Underlying this problem is sustained and substantial excess capacity, which has plagued the world's steel industry for the past 20 years. Low prices and profits over that period have in effect signalled that capacity should exit the industry. Traditional producers have responded by cutting capacity to bring it more in line with consumption and thus boost prices. Higher prices, however, encourage market entry, which in turn revives the excess capacity problem. …

Capacity Utilisation in Irish Manufacturing

Abstract: Capacity Utilisation (CU) measures play an important role in practical economic analysis Variation in the extent to which existing capacity is being utilised provides an indication of how the supply side of a particular industry, sector or economy is evolving relative to its demand side Such measures have been used to explain changes in investment flows and the general economic environment However, the primary significance of CU measures stems from their usefulness in uncovering upward pressure on the price level (ie inflation) This paper reviews some of the more common methods of calculating measures of capacity utilisation All methods are shown to have their own specific advantages and disadvantages The available monthly survey measures are currently the most accessible and perhaps the most useful from a policy viewpoint given the high frequency with which they become available However, there is a large degree of uncertainty about what these surveyed measures actually mean The paper has also applied the recently popularised cost function approach to measuring CU In recognition of the dichotomy which characterises Irish industry, the model was also fitted to two individual sub-sector classifications: Hi-technology and Traditional manufacturing The results suggest that a substantial degree of excess capacity existed in Irish manufacturing between 1970 and 1990 The constructed CU measure is also examined as a possible indicator of inflationary pressure No significant relationship between CU and inflation was found in either the Total or Hi-Technology sectors However, the CU ratio for the Traditional sector was found to be significantly positively related to Irish inflation

Capacity utilization, investment and normal prices: some issues in the sraffa‐keynes synthesis

Abstract: Drawing on recent debate over the theoretical significance of (Sraffian) normal prices this paper begins by outlining an interpretation of the relation between normal prices and administered pricing. This interpretation takes the anticipated average or normal rate of capacity utilization in each sector as data in the calculation of prices and profit rates. However, anticipated average utilization in each sector, in a cyclically disturbed system, will depend on relative prices and thus on distribution. This interdependence between prices, profit rates and utilization has an important bearing on certain issues arising out of attempts at a Sraffa-Keynes synthesis. The paper attempts to shed light on those issues by exploring further the links between pricing, utilization and investment, using a simplified three-sector model.

Four essays on the urban labour market in India

Abstract: This thesis explores labour market processes in urban India. Investigating large and persistent differentials in urban unemployment rates across the Indian states, we find that regions with higher wage push or better amenities have higher unemployment rates, controlling for labour force composition. The differentials are maintained by rural-urban migration rather than by barriers to inter-state migration. Our investigation of wage determination yields evidence of imperfect competition in the labour market which is not simply 'institutional'. Indian firms pay efficiency wages which induce sufficient productivity gains to pay for themselves. After identifying the long and short run structural processes in the labour market, we consider recent aggregate trends in India's factory sector. There was negative employment growth in the 1980s even as output growth touched record levels. Our analysis suggests that this had less to do with wage growth, as proposed by the World Bank, and more to do with increasing work intensity, encouraged by wage incentives, improved infrastructure and increased competition. Considerable slack was inherited from the past, evidence of which flows from the wage and production function estimates. We find that increased labour utilization raises capacity utilization. This is important because Indian industry has chronically carried large excess capacity. A breakthrough in total factor productivity growth accompanied declining employment in the 1980s and has been interpreted as the reward of deregulation in this decade. Existing studies mismeasure productivity growth by neglecting labour utilization (hours) and assuming perfectly competitive product markets. We produce new estimates at the aggregate and industry levels. A natural ceiling to hours worked moderates bad news on the employment front and good news on the productivity front. Our analyses are expected to contribute to the evaluation of current and controversial policy changes in India.

Capacity utilization-inflation linkages: a cross-country analysis

Abstract: This paper analyzes whether capacity utilization in manufacturing is a reliable inflation indicator over and above economy-wide indicators of inflationary pressure and examines different theories on the propagation of inflation by testing their implications for the relationship between capacity utilization and inflation. Three mechanisms whereby shocks to manufacturing can impact on inflation are explored: First, direct pressure on producer prices in manufacturing arising from bottlenecks and a slowdown in productivity growth at high operating rates, second, spill-overs of manufacturing-sector wage increases into inflationary wage growth in the service sector, and finally, investment in manufacturing capacity that stimulates expansion, capacity pressures, and inflation on an economy-wide basis. We find that manufacturing capacity utilization has marginal predictive power for inflation in seven out of 15 major OECD economies and that the inflationary impact of an increase in manufacturing operating rates tends to be sizable. The links between capacity utilization and inflation that we uncover suggest that the mechanisms that propagate inflationary impulses differ widely among nations. In the U.S. there is strong evidence that changes in manufacturing activity impact on inflation through unit labor costs and finished goods producer prices. By contrast, wage contagion appears to be a crucial element of the inflation process in Japan. It also plays a role in Europe, particularly in Germany. Finally, only in Germany of the major capital-goods producing economies, does capital goods prices unambiguously play a role in transmitting manufacturing-sector shocks to economy-wide price indices.

Why manufacturing firms produce some electricity internally

Abstract: Many manufacturers in developing countries produce their own electricity because the public supply is unavailable or unreliable. The authors develop a model of the firm in which electricity is produced internally, with scale economies. The model explains the observed behavior (prevalent in Nigeria, common in Indonesia, and rare in Thailand) that firms supplement their purchases of publicly produced electricity with electricity produced internally. To prepare an econometric estimate, they specify a translog model. In Nigeria, where firms exhibit excess capacity, generators are treated as a fixed input, whereas in Indonesia, where firms are expanding, they are variable. They confirm strong scale economies in internal power production in both Nigeria and Indonesia. Shadow price analysis for both countries shows that smaller firms would pay much more for public power than larger firms would. Instead of giving quantity discounts, public monopolies should charge the larger firms more and the smaller firms less than they presently charge. In Nigeria, the large firms would make intensive use of their idle generating capacity, while in Indonesia their would expand their facilities. In both countries, small users would realize savings by having to rely less on expensive endogenous power.

Inflation, Nominal Interest Rates, and the Variability of Output

Abstract: This paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative. When fluctuations in output result primarily from disturbances to the money market, the variance of output is shown to be an increasing function of the trend inflation rate. When they result from disturbances to the goods market, the variance of output is a decreasing function of the trend inflation rate. When both disturbances are significant, there exists, in general, a critical non-zero trend inflation rate that minimizes the variance of output.

Barriers to entry in the U.S. and Japanese titanium industries

Abstract: The purpose of this paper is to construct and empirically test a model designed to determine the impact of increases in production capacity and any related excess capacity on the probability of entry into the Japanese titanium industry. These results will be compared to those of an earlier study pertaining to the U.S. titanium industry. Relevant predictor variables are employed in a model to obtain estimates of changes in titanium production and capacity. These estimates are then used in a logit analysis to determine their impact on the probability of firm entry into the Japanese titanium industry. The results of this analysis, unlike those from the earlier U.S. study, indicate that predicted capacity expansion by incumbent Japanese firms had no significant impact on the probability of entry.

Growth, Poverty, and Human Development: Pakistan

Abstract: The industrialization drive was provided by a combination of instruments-i.e., regime of import and export controls and overvalued exchange rate, public procurement of foodgrains at prices below the market prices in order to maintain stable food prices and wages in urban areas and liberal tax concessions to industry, low level of direct taxation, and heavy indirect taxation. By the end of the first decade, the regional and sectoral imbalances created by this import substitution-led development strategy began to make themselves felt. However, with the infusion of substantial foreign aid, which financed from a half to two-thirds of total investment, the pace of industrial investment kept rising steadily. The expansion of industrial capacity, predominantly for manufactured consumer goods, was achieved not only at a high cost but also led to considerable excess capacity.

A Revision to Industrial Production and Capacity Utilization, 1991-95

Abstract: The Federal Reserve’s index of industrial production (IP) and its related measures of capacity and utilization for January 1991 onward have been revised (tables 1.A. and 1.B). The updated indexes for total IP and for manufacturing show slower growth for 1993 and faster growth for 1994 than was previously estimated. For 1995, the level of the revised production indexes for both major aggregates are, on balance, about the same as previously reported. Capacity growth, however, is now estimated to have been a fraction of a percentage point higher over the period of the revision. As a result, the rates of capacity utilization last summer for total IP and for manufacturing are slightly lower than previously reported. The updated measures continue to paint the same