The Law of Diminishing Returns Demonstrated

I don’t really have a ton of time for blogging (have you noticed?) but there was this interesting example I wanted to share with you.

I was introduced to the idea of the Law of Diminishing Returns in a lecture by Peter Klein several years ago. At first it didn’t make sense, but after I realized it was true only when a factor of production is limited, I understood it. Basically the law is that if one of your factors is “stuck” and can’t be increased, there comes a point when no matter how many other factors you increase, your output will decrease. For example, if a bakery has only 2 ovens, no matter how many bakers the owner hires, there is a point when their output starts going down and the owner loses money because there are too many bakers. If you have 20 bakers and only 2 ovens, obviously some of those bakers will be standing around twiddling their thumbs because the ovens are in use.

So at work we use this software to enter, track, and ship jobs. It is supposed to do much more, but at this point that’s essentially all it does. It is installed on this ancient computer and is an ancient version of the software. It is so ancient that we can’t upgrade to the newest version in one step, so we need a consultant to come in and help us do it. Anyways…the new version is on all our network computers and the old version is on one isolated computer because the two systems can’t coexist on the same system.  Our whole business is basically dependent on that one computer. Only one person can use that one computer at one time. Right now I feel like one of those excess bakers because our full-time office person has to use the computer all day for entering jobs and so forth, but there’s a lot of information I need from the computer too and a lot that I could do to improve it and make it better, but I don’t have time. Thankfully there are a ton of things I can do besides using that computer, but if I couldn’t do anything else, I’d be a loss to the business right now since I can’t use the computer. I’m excited because next week we’re moving to the new version which will be available on all the computers in the shop so I can do my stuff and someone else can enter jobs and someone else can be shipping parts and we can all work on the same software at the same time. By increasing this factor that has been limited for so long, we’ll be increasing our output.

Yes, a little geeky, but nevertheless very interesting. 🙂

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