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Yakk · 12-23-2008, 02:50 PM

Company A: makes makes people work for 1200 units of work to build 1200 coconuts in January. Then shuts down production for 11 months of coconuts, and works on other stuff. 5 people are, however, employed each month after the first to deal with the inventory management of coconuts.

Company B: makes people work for 100 units of work to build 100 units a month for the entire year.

Differences in available labor, B-A:
-1100 in January, 95 each month afterwards.

Now, lets suppose there are other productive things people could do. Let's suppose these things have a 0.5% monthly return on investment -- ie, doing the work 1 month earlier is 0.5% better than doing it now, and now is 0.5% better than doing it next month.

At the end of the year, both companies have 1200 coconuts they consumed.

There is a difference in the 'unused labor' of both companies. We will presume that people went off and made something useful when not employed.

1100 more free people in January under B. They produce 1100 units of work somewhere.

By the end of the year, this grows to 1.005^11 * 1100 =~ 1162 "units of usefulness".

In Febuary, A has 95 more people free to work on other projects. They produce 95 units of work somewhere.

By the end of the year, this grows to 1.005^10 * 95.

March is the same, which grows to 1.005^9 * 95.

Etc all the way to december, with A accumultating an advantage of:

(1.005^10 + ... + 1.005^0) * 95
= 95 * (1 - 1.005^11) / (1 - 1.005) =~ 1071.5 "units of usefulness" over those 11 months.

Which means that B is about 90.5 man-months of labor output ahead of company A. By implementing JIT delivery. (Note that the 55 man-months of manning the warehouse do not account for the entire gap)

The basic idea is that if you can do something efficiently, then _you can use the resources involved on other things_. And there are lots of useful places to spend resources.

And if you can defer your use of resources until it is needed, it means that things which have a time-pressing need for resources have more free resources to be used _now_.

This results in higher efficiency -- higher output per unit labor -- which makes society as a whole richer.

12-23-2008, 02:50 PM	#82 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	Company A: makes makes people work for 1200 units of work to build 1200 coconuts in January. Then shuts down production for 11 months of coconuts, and works on other stuff. 5 people are, however, employed each month after the first to deal with the inventory management of coconuts. Company B: makes people work for 100 units of work to build 100 units a month for the entire year. Differences in available labor, B-A: -1100 in January, 95 each month afterwards. Now, lets suppose there are other productive things people could do. Let's suppose these things have a 0.5% monthly return on investment -- ie, doing the work 1 month earlier is 0.5% better than doing it now, and now is 0.5% better than doing it next month. At the end of the year, both companies have 1200 coconuts they consumed. There is a difference in the 'unused labor' of both companies. We will presume that people went off and made something useful when not employed. 1100 more free people in January under B. They produce 1100 units of work somewhere. By the end of the year, this grows to 1.005^11 * 1100 =~ 1162 "units of usefulness". In Febuary, A has 95 more people free to work on other projects. They produce 95 units of work somewhere. By the end of the year, this grows to 1.005^10 * 95. March is the same, which grows to 1.005^9 * 95. Etc all the way to december, with A accumultating an advantage of: (1.005^10 + ... + 1.005^0) * 95 = 95 * (1 - 1.005^11) / (1 - 1.005) =~ 1071.5 "units of usefulness" over those 11 months. Which means that B is about 90.5 man-months of labor output ahead of company A. By implementing JIT delivery. (Note that the 55 man-months of manning the warehouse do not account for the entire gap) The basic idea is that if you can do something efficiently, then _you can use the resources involved on other things_. And there are lots of useful places to spend resources. And if you can defer your use of resources until it is needed, it means that things which have a time-pressing need for resources have more free resources to be used _now_. This results in higher efficiency -- higher output per unit labor -- which makes society as a whole richer. __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.