Prediction of Profit Lost to Underutilization during Useful Life of Manufacturing Systems

Abstract

Rapluc-Comparator used for predicting and comparing future worth of profit that will be lost to underutilization during the useful life of production equipment and their replacement costs was developed in this study and used to evaluate the equipment replacement potentials of some manufacturing industries in Nigerian. Results obtained showed that 21.52% of the industries investigated (mainly small and medium scale firms) will lose profit worth more than their equipment replacement cost to underutilization at the end of their systems while 35.14% of them will lose profit worth over 50% of their equipment replacement cost. This revealed that capacity planning which amply accounts for both input availability and product demand before design and procurement of production facilities is inadequate in the small and medium scale manufacturing sector of this nation. Hence, the significant effect of unused capacity charges on selling price of products of small firms relative to those of the large ones in Nigeria and incessant liquidation of Nigerian small and medium manufacturing industries due to the inability of the firms to replace their production facilities as at when due because of huge profit lost to underutilization. Rapluc-Comparator is therefore recommended to owner/managers of industries for self-assessment of their potentials for continuous existence and robustness in stiff market competition.

Keywords: Capacity, manufacturing system, profit lost, replacement cost, underutilization