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University of Pennsylvania

1999

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Full-Text Articles in Other Economics

The Economics Of Yield-Driven Processes, Roger E. Bohn, Christian Terwiesch Dec 1999

The Economics Of Yield-Driven Processes, Roger E. Bohn, Christian Terwiesch

Operations, Information and Decisions Papers

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 ...