Learning and process improvement during production ramp-up

Article Abstract:

Rapid product lifecycles and high development costs pressure manufacturing firms to cut not only their development times (time-to-market), but also the time to reach full capacity utilization (time-to-volume). The period between completion of development and full capacity utilization is known as production ramp-up. During that time, the new production process is ill understood, which causes low yields and low production rates. This paper analyzes the interactions among capacity utilization, yields, and process improvement (learning). We model learning in the form of deliberate experiments, which reduce capacity in the short run. This creates a trade-off between experiments and production. High selling prices during ramp-up raise the opportunity cost of experiments, yet early learning is more valuable than later learning. We formalize the resulting intertemporal trade-off between the short-term opportunity cost of capacity and the long term value of learning as a dynamic program. The paper also examines the tradeoff between production speed and yield/quality, where faster production rates lead to more defects. Finally, we show what happens if managers misunderstand the sources of learning. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Yield; Ramp-up; Start-up; Learning curve; Experimentation

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A note on joint estimation of scale economies and productivity growth parameters

Article Abstract:

In applied research it is common to estimate complete production models, obtain measures of scale economies and total factor productivity growth and then regress such measures on exogenous variables. Such procedures result in inconsistent estimates of technological as well as regression parameters: estimation of total factor productivity and scale economies in the first step, does not take into account that these measures depend on exogenous variables in the second step. Therefore, their dependence on exogenous variables is not properly taken into account in the first step. The study proposes to estimate jointly the cost function, the share equations as well as total factor productivity and scale economies measures, using full system estimation to account for all the restrictions implied by their endogeneity. The approach is illustrated using data from British, French, and German railways. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Scale economies; Productivity growth; Complete production models; Duality; Econometric estimation of technology characteristics; European railway systems

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