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Which utilization and service level lead to the maximum EVA?

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  • Altendorfer, Klaus
  • Jodlbauer, Herbert
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    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 130 (2011)
    Issue (Month): 1 (March)
    Pages: 16-26

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    Handle: RePEc:eee:proeco:v:130:y:2011:i:1:p:16-26

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Make-to-order Economic value added Utilization Service level Production lead time;

    References

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    1. Jodlbauer, H., 2008. "Customer driven production planning," International Journal of Production Economics, Elsevier, Elsevier, vol. 111(2), pages 793-801, February.
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    11. Dimitris Paraskevopoulos & Elias Karakitsos & Berc Rustem, 1991. "Robust Capacity Planning Under Uncertainty," Management Science, INFORMS, INFORMS, vol. 37(7), pages 787-800, July.
    12. 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(03), pages 719-730, September.
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