Startup Research Presents Purchasing Problems and Opportunities (I)

Abstract

Jim Adams posed proudly for news photographers in January 1963 beside a model of the $3 million continuous steel casting machine which he announced would be installed by June 1964, producing at a 200,000 ton per year capacity rate by December 1964, and would add $1.5 million to 1965 profits. He noted that $200,000 had been provided in the capital budget for contingencies. Contrasted to this proud announcement, the record showed, 4½ years later, that the first steel was cast in October 1964, capacity monthly production of 16,000 tons was first achieved in June 1967, startup modification costs totalled $1.7 million, while 80,000 tons of lost production caused a reduction in contribution to profit of $3.6 million during the startup period. This startup of a plant using new process technology had taken 2½ years longer and had cost $4 million more than Jim Adams expected. He felt defensive about the result and would have been much relieved to know that his startup, rather than being an isolated misfortune, was better than the average in such circumstances. Most startups using new technology take longer, and cost much more, than expected.

Citation

Leenders, M.R. and Henderson, R. (1980), "Startup Research Presents Purchasing Problems and Opportunities (I)", International Journal of Operations & Production Management, Vol. 1 No. 2, pp. 83-94. https://doi.org/10.1108/eb054662