4 ms·

The challenge with this kind of stuff is that capital costs are a big part of the cost for large industrial plants. A plant which is only using 25% of its capac

The challenge with this kind of stuff is that capital costs are a big part of the cost for large industrial plants. A plant which is only using 25% of its capacity is going to be unprofitable.

bluGill 6y ago
When the biggest input cost is energy you are wrong. A plant that is 10% capacity by running only when energy is cheap is more profitable than a plant at 90% running at whatever energy prices are. (in the real world take my numbers and reduce by 75% - between nights, weekends, and maintenance shutdowns a real industrial plant at 25% capacity is already common) The company I work for has two plants near each other, where one is run in winter, and one in summer, each producing a different product. The workers alternate between which plant they work at depending on the season. The other plant is shutdown for maintenance. By replacing the conveyor belt every year we ensure production never shuts down unexpectedly while people are working, and this more than makes up for the cost of a factory that is idle half of the year. We have a lot of factories. The above two plants are not the foundry where we pour iron which I talked about in a different thread.
- VBprogrammer 6y ago
  Without knowing what industry you are talking about it's hard to engage in any meaningful dialog. It clearly doesn't matter what percentage of the input cost is energy to whether the plant is profitable. So long as that percentage is non-zero there will always be an energy cost at which the total cost to produce is higher than the market price to sell (ask any industry in Texas). Clearly there are other factors too, in your example it seems like labour costs are very high or perhaps contractual demands on output mean down time is unacceptable.
  - bluGill 6y ago
    Input costs and final price are what matter to profitability. The machines are part input cost, but they are spread across many different products, often over years. The reason an idle machine is bad is because you have to pay interest on the loan (write downs and all that complexity). You also have to pay rent (taxes) on the building they are in. You need to do basic maintenance (HVAC so they don't deteriorate). You need to ensure the machine operator (which might be a rare skill) is available when you put it back to work, which might mean paying the operator to do nothing just so he doesn't find a new job while laid off. All of these raise the input cost of restarting after a long period of being idle - sometimes you are better off scraping the machines and buying new if you need them. Against that you have demand and ability to store the finished product. Some things can be stored up (just in time calls this bad, but it isn't always a bad thing), while others degrade quickly. Some things your customers will order well in advance so you can plan around demand, while others you get an order for "yesterday" (if only you had a time machine). Depending on how all of the above work out idle factories have different economics.

The challenge with this kind of stuff is that capital costs are a big part of the cost for large industrial plants. A plant which is only using 25% of its capacity is going to be unprofitable.

bluGill 6y ago

When the biggest input cost is energy you are wrong. A plant that is 10% capacity by running only when energy is cheap is more profitable than a plant at 90% running at whatever energy prices are. (in the real world take my numbers and reduce by 75% - between nights, weekends, and maintenance shutdowns a real industrial plant at 25% capacity is already common) The company I work for has two plants near each other, where one is run in winter, and one in summer, each producing a different product. The workers alternate between which plant they work at depending on the season. The other plant is shutdown for maintenance. By replacing the conveyor belt every year we ensure production never shuts down unexpectedly while people are working, and this more than makes up for the cost of a factory that is idle half of the year. We have a lot of factories. The above two plants are not the foundry where we pour iron which I talked about in a different thread.

VBprogrammer 6y ago
Without knowing what industry you are talking about it's hard to engage in any meaningful dialog. It clearly doesn't matter what percentage of the input cost is energy to whether the plant is profitable. So long as that percentage is non-zero there will always be an energy cost at which the total cost to produce is higher than the market price to sell (ask any industry in Texas). Clearly there are other factors too, in your example it seems like labour costs are very high or perhaps contractual demands on output mean down time is unacceptable.
- bluGill 6y ago
  Input costs and final price are what matter to profitability. The machines are part input cost, but they are spread across many different products, often over years. The reason an idle machine is bad is because you have to pay interest on the loan (write downs and all that complexity). You also have to pay rent (taxes) on the building they are in. You need to do basic maintenance (HVAC so they don't deteriorate). You need to ensure the machine operator (which might be a rare skill) is available when you put it back to work, which might mean paying the operator to do nothing just so he doesn't find a new job while laid off. All of these raise the input cost of restarting after a long period of being idle - sometimes you are better off scraping the machines and buying new if you need them. Against that you have demand and ability to store the finished product. Some things can be stored up (just in time calls this bad, but it isn't always a bad thing), while others degrade quickly. Some things your customers will order well in advance so you can plan around demand, while others you get an order for "yesterday" (if only you had a time machine). Depending on how all of the above work out idle factories have different economics.