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The economics of yield‐driven processes
Author(s) -
Bohn Roger E.,
Terwiesch Christian
Publication year - 1999
Publication title -
journal of operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.649
H-Index - 191
eISSN - 1873-1317
pISSN - 0272-6963
DOI - 10.1016/s0272-6963(99)00014-5
Subject(s) - rework , yield (engineering) , revenue , point (geometry) , product (mathematics) , economics , production (economics) , factory (object oriented programming) , minification , process (computing) , computer science , industrial organization , operations management , econometrics , operations research , microeconomics , mathematics , accounting , materials science , geometry , programming language , metallurgy , embedded system , operating system
The economic performance of many modern production processes is substantially influenced by process yields. Their first effect is on product cost — in some cases, low‐yields can cause costs to double or worse. Yet measuring only costs can substantially underestimate the importance of yield improvement. We show that yields are especially important in periods of constrained capacity, such as new product ramp‐up. Our analysis is illustrated with numerical examples taken from hard disk drive manufacturing. A three percentage point increase in yields can be worth about 6% of gross revenue and 17% of contribution. In fact, an eight percentage point improvement in process yields can outweigh a US$20/h increase in direct labor wages. Therefore, yields, in addition to or instead of labor costs, should be a focus of attention when making decisions such as new factory siting and type of automation. The paper also provides rules for when to rework, and shows that cost minimization logic can again give wrong answers.