What is Business Entropy

Michael George ()

No 604, Working Papers from Institute of Business Entropy

Abstract: Entropy was first glimpsed in 1824 when Sadi Carnot, son of the Prime Minister of France, observed that steam engines wasted 97% of their heat energy, and wondered how efficient they could be. An engine works by drawing in heat energy Hi from gasoline and exploding it at high temperature Ti, that energy in the gas then pushes on a piston to turn a crankshaft and do useful work, but an amount of the heat energy Hw is wasted to the environment at temperature Tw , which is about 70F (25C) In 1850 Rudolph Clausius found a mathematical expression for Carnot’s ideas. Clausius found that the ratio of heat to temperature could at best be constant, and he called this constant Entropy. Businesses purchase material and labor, apply them in a manufacturing or service process to create useful products and services. Inevitably business processes must waste some money on effort not really of benefit to customers such as warehouses, quality defects, obsolescence, etc. Is there some minimum amount of waste in a business process? Can we find an equation for this waste similar to that of Clausius that may tell us how to reduce the waste? A practical procedure for necessary data collection is defined which will allow management to predict cost reduction due to process improvement. Additional case studies will test the validity of this Equation of Cost Reduction in which academics are invited to participate.

Keywords: Equation of Projected Cost Reduction; Process Entropy; Information; Complexity; Waste; Little’s Law; Shannon; Boltzmann; Carnot (search for similar items in EconPapers)
JEL-codes: C10 C11 C13 C24 C51 D8 L11 L15 L6 L7 L8 M21 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-08
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