IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v130y2011i1p16-26.html
   My bibliography  Save this article

Which utilization and service level lead to the maximum EVA?

Author

Listed:
  • Altendorfer, Klaus
  • Jodlbauer, Herbert

Abstract

In this paper a model for evaluating the influence of utilization, WIP, FGI, service level and production lead time on EVA (economic value added) is developed in order to link the available logistical key figures with a market perspective and discuss their influence on company value. The question answered in this paper is: What is the optimal utilization and service level of a production system in order to achieve the maximum possible EVA for a company? A single-product, single-machine, make-to-order production system with investment dependent machine capacity is modeled. The model combines a market share concept based on delivery/production lead time and service level with concepts describing the logistical relationships between WIP, utilization, production lead time and service level. In addition to the explanatory use of the model, it can provide support for strategic decisions concerning investing or divesting machinery. The main application of this model is in describing the link between capacity investment and company value comprehensively based on data available from cost accounting in real companies. Furthermore, this paper shows that high flexibility of personnel and machine capacity increases the maximum possible EVA of production systems even if this flexibility is linked to additional costs.

Suggested Citation

  • Altendorfer, Klaus & Jodlbauer, Herbert, 2011. "Which utilization and service level lead to the maximum EVA?," International Journal of Production Economics, Elsevier, vol. 130(1), pages 16-26, March.
    • Handle: RePEc:eee:proeco:v:130:y:2011:i:1:p:16-26
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925-5273(10)00401-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lutz, Stefan & Loedding, Hermann & Wiendahl, Hans-Peter, 2003. "Logistics-oriented inventory analysis," International Journal of Production Economics, Elsevier, vol. 85(2), pages 217-231, August.
    2. Coelli, Tim & Grifell-Tatje, Emili & Perelman, Sergio, 2002. "Capacity utilisation and profitability: A decomposition of short-run profit efficiency," International Journal of Production Economics, Elsevier, vol. 79(3), pages 261-278, October.
    3. Jodlbauer, H., 2008. "Customer driven production planning," International Journal of Production Economics, Elsevier, vol. 111(2), pages 793-801, February.
    4. C. H. Jones, 1973. "An Economic Evaluation of Job Shop Dispatching Rules," Management Science, INFORMS, vol. 20(3), pages 293-307, November.
    5. Van Nieuwenhuyse, Inneke & Vandaele, Nico & Rajaram, Kumar & Karmarkar, Uday S., 2007. "Buffer sizing in multi-product multi-reactor batch processes: Impact of allocation and campaign sizing policies," European Journal of Operational Research, Elsevier, vol. 179(2), pages 424-443, June.
    6. Teck H. Ho & Yu-Sheng Zheng, 2004. "Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective," Management Science, INFORMS, vol. 50(4), pages 479-488, April.
    7. Souza, Gilvan C. & Wagner, Harvey M. & Whybark, D. Clay, 2001. "Evaluating focused factory benefits with queuing theory," European Journal of Operational Research, Elsevier, vol. 128(3), pages 597-610, February.
    8. Ebru K. Bish & Ana Muriel & Stephan Biller, 2005. "Managing Flexible Capacity in a Make-to-Order Environment," Management Science, INFORMS, vol. 51(2), pages 167-180, February.
    9. Phillip J. Lederer & Lode Li, 1997. "Pricing, Production, Scheduling, and Delivery-Time Competition," Operations Research, INFORMS, vol. 45(3), pages 407-420, June.
    10. Jodlbauer, Herbert & Altendorfer, Klaus, 2010. "Trade-off between capacity invested and inventory needed," European Journal of Operational Research, Elsevier, vol. 203(1), pages 118-133, May.
    11. Zapfel, Gunther, 1998. "Customer-order-driven production: An economical concept for responding to demand uncertainty?," International Journal of Production Economics, Elsevier, vol. 56(1), pages 699-709, September.
    12. Betrand, J.W.M. & van Ooijen, H.P.G., 2008. "Optimal work order release for make-to-order job shops with customer order lead-time costs, tardiness costs and work-in-process costs," International Journal of Production Economics, Elsevier, vol. 116(2), pages 233-241, December.
    13. Lode Li & Yew Sing Lee, 1994. "Pricing and Delivery-Time Performance in a Competitive Environment," Management Science, INFORMS, vol. 40(5), pages 633-646, May.
    14. Dimitris Paraskevopoulos & Elias Karakitsos & Berc Rustem, 1991. "Robust Capacity Planning Under Uncertainty," Management Science, INFORMS, vol. 37(7), pages 787-800, July.
    15. Schnetzler, Matthias J. & Sennheiser, Andreas & Schonsleben, Paul, 2007. "A decomposition-based approach for the development of a supply chain strategy," International Journal of Production Economics, Elsevier, vol. 105(1), pages 21-42, January.
    16. Miles, James A. & Ezzell, John R., 1980. "The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(3), pages 719-730, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Altendorfer, Klaus, 2017. "Relation between lead time dependent demand and capacity flexibility in a two-stage supply chain with lost sales," International Journal of Production Economics, Elsevier, vol. 194(C), pages 13-24.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Altendorfer, Klaus, 2017. "Relation between lead time dependent demand and capacity flexibility in a two-stage supply chain with lost sales," International Journal of Production Economics, Elsevier, vol. 194(C), pages 13-24.
    2. Xuchuan Yuan & Tinglong Dai & Lucy Gongtao Chen & Srinagesh Gavirneni, 2021. "Co-Opetition in Service Clusters with Waiting-Area Entertainment," Manufacturing & Service Operations Management, INFORMS, vol. 23(1), pages 106-122, 1-2.
    3. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, vol. 57(3), pages 599-610, March.
    4. Tang, Christopher S., 2010. "A review of marketing-operations interface models: From co-existence to coordination and collaboration," International Journal of Production Economics, Elsevier, vol. 125(1), pages 22-40, May.
    5. Kut C. So, 2000. "Price and Time Competition for Service Delivery," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 392-409, April.
    6. Jodlbauer, Herbert & Altendorfer, Klaus, 2010. "Trade-off between capacity invested and inventory needed," European Journal of Operational Research, Elsevier, vol. 203(1), pages 118-133, May.
    7. Albert Y. Ha & Lode Li & Shu-Ming Ng, 2003. "Price and Delivery Logistics Competition in a Supply Chain," Management Science, INFORMS, vol. 49(9), pages 1139-1153, September.
    8. Vasco F. Alves, 2019. "Pricing and waiting time decisions in a health care market with private and public provision," Journal of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 174-195, January.
    9. Ryan W. Buell & Michael I. Norton, 2011. "The Labor Illusion: How Operational Transparency Increases Perceived Value," Management Science, INFORMS, vol. 57(9), pages 1564-1579, February.
    10. Gad Allon & Awi Federgruen, 2009. "Competition in Service Industries with Segmented Markets," Management Science, INFORMS, vol. 55(4), pages 619-634, April.
    11. Mor Armony & Erica Plambeck & Sridhar Seshadri, 2009. "Sensitivity of Optimal Capacity to Customer Impatience in an Unobservable M/M/S Queue (Why You Shouldn't Shout at the DMV)," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 19-32, June.
    12. Zhao, Jing & Wang, Lisha, 2015. "Pricing and retail service decisions in fuzzy uncertainty environments," Applied Mathematics and Computation, Elsevier, vol. 250(C), pages 580-592.
    13. So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
    14. Krishnan S. Anand & M. Faz{i}l Paç & Senthil Veeraraghavan, 2011. "Quality-Speed Conundrum: Trade-offs in Customer-Intensive Services," Management Science, INFORMS, vol. 57(1), pages 40-56, January.
    15. Huang, Yeu-Shiang & Chen, Si-Hen & Ho, Jyh-Wen, 2013. "A study on pricing and delivery strategy for e-retailing systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 71-84.
    16. Ryan W. Buell & Dennis Campbell & Frances X. Frei, 2016. "How Do Customers Respond to Increased Service Quality Competition?," Manufacturing & Service Operations Management, INFORMS, vol. 18(4), pages 585-607, October.
    17. Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
    18. Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
    19. Anthony M. Kwasnica & Euthemia Stavrulaki, 2008. "Competitive location and capacity decisions for firms serving time‐sensitive customers," Naval Research Logistics (NRL), John Wiley & Sons, vol. 55(7), pages 704-721, October.
    20. Barış Ata & Tava Lennon Olsen, 2009. "Near-Optimal Dynamic Lead-Time Quotation and Scheduling Under Convex-Concave Customer Delay Costs," Operations Research, INFORMS, vol. 57(3), pages 753-768, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:130:y:2011:i:1:p:16-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.