When considering planning a manufacturing operation, obvious questions are:
1) how much will it cost per widget, including capital, labor, energy costs and so on!
2) Where will the costs be lowest, with transportation costs to markets included?
3) When should I build
4) How large should the operation be? How many manufacturing lines, and so on.
Of course, this is an issue from operations research, where one tries to optimize profits (producer model in microeconomics), with the realization that there are risks ...
1) of market size not being realized
2) market share not captured by my company
so that I end up with unused capacity. Of course, the converse risk is not capturing market share because I have too little capacity!
For an engineering perspective, see
1) how much will it cost per widget, including capital, labor, energy costs and so on!
2) Where will the costs be lowest, with transportation costs to markets included?
3) When should I build
4) How large should the operation be? How many manufacturing lines, and so on.
Of course, this is an issue from operations research, where one tries to optimize profits (producer model in microeconomics), with the realization that there are risks ...
1) of market size not being realized
2) market share not captured by my company
so that I end up with unused capacity. Of course, the converse risk is not capturing market share because I have too little capacity!
For an engineering perspective, see
What Every
Engineer Should Know about Manufac…
The equation for profit (please comment if I have this wrong ...!!!) amortized over each item, given a manufacturing line that produces N widgets per year, sold at price p, in a plant that costs cap to build and is sold for cap $_f$ after depreciation with a factor depreciation factor each year, and has operating costs including labor, raw materials utilities, waste handling, etc., is
profit/N = $\gamma$ p - $\gamma^s $ cap * deprec factor - oper - p * $\Delta$ inventory
Note: The variable "s" is an exponent that reflects the scale of an operation. So, expanding operations from N items per year (so $\gamma = 1$) to 2 N increases capital costs by $2^s$. So, if s = 0.7, the doubling of manufacturing capacity increases capital costs by 62%.
So, just how big is the capital expenditure part for energy applications? Daniel Yergin says "energy is a huge, capital-intensive business, and it takes a very long time for new technologies to scale" Yergin on energy scale. For fossil fuel generators, for example, not only is the construction of a larger facility benefited by economics of scale, in operations, scale matters too, because there is a larger ratio of heat transfer surface inside the boiler than the surface of the enclosure, where energy is lost.
The equation for profit (please comment if I have this wrong ...!!!) amortized over each item, given a manufacturing line that produces N widgets per year, sold at price p, in a plant that costs cap to build and is sold for cap $_f$ after depreciation with a factor depreciation factor each year, and has operating costs including labor, raw materials utilities, waste handling, etc., is
profit/N = $\gamma$ p - $\gamma^s $ cap * deprec factor - oper - p * $\Delta$ inventory
Note: The variable "s" is an exponent that reflects the scale of an operation. So, expanding operations from N items per year (so $\gamma = 1$) to 2 N increases capital costs by $2^s$. So, if s = 0.7, the doubling of manufacturing capacity increases capital costs by 62%.
So, just how big is the capital expenditure part for energy applications? Daniel Yergin says "energy is a huge, capital-intensive business, and it takes a very long time for new technologies to scale" Yergin on energy scale. For fossil fuel generators, for example, not only is the construction of a larger facility benefited by economics of scale, in operations, scale matters too, because there is a larger ratio of heat transfer surface inside the boiler than the surface of the enclosure, where energy is lost.
