#F*mp**c

lntroduction to Operations

Management 53

V SOLVED PBOBLETfr I,2 .lrt Binley has decided to look af his productivity from amultifactor (totai factor productivity) perspective (iefer to Solved problem 1.1). To do sO, he has determined his labor, capital, energy, and material usage and decided to use dollars as the common denominator. His total labor-hours are now 300 per day and will increase

to 308 per day. His capital and energy costs

will remain con$tant at $350 and $150 per 4ay, respectively. Material costs for the 100
logs per day are $i,000 and will remain th same. Because [e pays an average of $10 per hour (with fringes), Biniey detennines his productivity increase as follows:

Y SOLUTION
Current System
Labor: System with Pro&ssional Buyer
308 hrs. @10 =

Materiai:
Capital: Energy: Total Cost:

300 hrs. @10 = 3.000 100logs/day 1,000

$3,080 r,000
350
150

350
150

$4.500

$4,580 Multifactor productivity of proposed system: 260cratesl4,580 -0568 cratesldollar

Multifactor productivity of current system:

24Qcrates/4,500

.0533 crates/dollar

Usingcurrentproductivity(.0533)asabase,theincreasewilibe.066,Thatis,.0568/.0533

1.066, ata6,6Voincrease.

Problerns*
. l.l John Lucy makes wooden boxes in which to ship motorcycles. John and his three employees invest a total of 40 hours per day making the 120 boxes. a) What is their productivity? b) John and his employees have discussed redesigning the process to improve efficiency. If they can increase the rate to 125 per day, what will be their new productivity? c) What will be their unit increase in productivity per hour? d) What will be their percentage change in productivity?*{ , 1,2
Riverside Metal Works produces cast bronze valves on

b) Lori thinks c)

that by redesigning the package, she can increase her total productivity to 133 care packages per day. What will be her new productivity? What will be the percentage increase in ploductivity if Lori makes the change? F"o

a lO-person assembly line. On a recent day, 160 valves were produced during an S-hour shift. a) Calculate the labor productivity

1.6 Eric Johnson makes billiard balls in his New England plant. With recent increases in his costs, he has a newfound interest in efficiency. Edc is interested in deterrnining the productivity ofhis organization. He would like to know if his organization is maintaining the manufacturing average of 37a increase in prodr-rctivity. He has the fbilowing data representing a month from last year and an equivalent month rhib year:
Last Units produced Labor (hours) Resin (pounds) Capital invested ($) Energy (BTU)

ofthe line.

b) The manager at Riverside changed the layout and was able to increase production to 180 units per 8-hour shift. What is the

Year

Now
1,000 275
r

c)

new labor productivity per labor-hour? What is the percentage of productivity increase?

*f-

1,000 300 50 10,000 3.000

This year, Benson, Inc., will produce 57,600 hot water heaters at its plant in Yuiee, Florida, in order to meet expected global demand. To accomplish this, each laborer at the yulee plant will work 160 hours per monrh. If the labor productivity at the plant is 0.15 hot water heaters per labor-hour, how many laborers are
employed at the plant? As a library or Intemet assignment, find the U.S. productivity rate (increase) last year for the (a) national economy, (b) manulacturing sector. and 1c.; seruice sector.

1.3

45 1,000 2,850

1.4

Show the productivity percentage change for each category and then determine the improvement for iabor-hours, the typical stanOa-rO

IOI COmpanSOn.

Eb. -. r$

Lori produces "Final Exam Care Packages" for resale by her sorority. She is currently working a total of 5 hours per day to produce I 00 care packages. a) What is Lori's productivity?
*Nole.' Q, means the problem may be solved with POM lbr Windows
and/or Excel OM.

1.5

1.7 Eric Johnson (using data from Problem 1.6) determines his costs to be as follows: . Labor: $10 per hour . Resin: $5 per pound . Capital expense: 1% per month of investment . Energy:
$.50 per BTU.

Show the percent change in productivity for one month last year versus one month this year, on a multifactor basis with dollars as the cornmon denominator. P I

54 .

P,S.ffiY

lntroduction to Operations Management

1.8

Kleen Karpet cleaned 65 rugs in October, consuming

520 hours at $13 per hour 100 gallons at $5 per gallon 20 days at $50 per day

the following resources:

Labor: Solvent: Machine rentai:

a) What

kilowatt-hours. Average labor cost iast year was $20 per hour, kits cost $1,000 each, and energy costs were $3 per kilowatt-hour. What do you tell Mr. Cunningham? F;{.

1.12 Lake Charles Seafood

makes 500 wooden packing

b)

is the labor productivity per dollar? What is the multifactor productivityl Fl*

boxes for fresh seafood per day, working in two 1 0-hour shifts. Due to increased demand, plant managers have decided to operate three S-hour shifts instead. The plant is now able to produce 650 boxes per day.

David Upton is president of Upton Manutacturing, a producer of Go-Kart tires. Upton makes 1,000 tires per day with the following resources:

{.9

a) Calculate

the company's productivity before the change in work

ru1es and after the change.

b)

Labor:
Raw

material:

400 hours per day @ $12.50 per hour 20,000 pounds per day @ $1 per pound $5,000 per day $10,000 per day these tires at

c) If production

What is the percentage increase in productivity'l is increased to 700 boxes per day, what is the new

productivity?

Energy: Capital costs:

I .l 3 Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and excellent location, demand has increased by 25Vo in the last year. On far too many occasions, customers have not been able to purchase the bread of their choice. Because of the size of the store. no new ovens can be added' At a staffmeeting, one employee suggested ways to load the ovens differentiy so that more loaves ofbread can be baked at one time. This new process will require that the ovens be loaded by hand, requiring additional manpower. This is the only thing to be changed. If the bakery makes 1,500 loaves per month with a labor productivity of 2.344 loaves per labor-hour, how many workers wili Lackey need to add? (Hint: Each worker works 160 hours per month.)

a) What is the labor productivity per labor-hour for

Upton Manufacturing?

b) What is the multifactor productivity for c)

these tires at Upton Manufacturing? What is the percent change in multifactor productivity if Upton can reduce the energy bill by $ 1,000 per day without cutting production or changing any other inputs? Su

..

l.1O

Sawyer's, a local bakery, is worried about increased

costs-pafticularly energy. Last year's records can provide a fairly

good estimate of the parameters for this year. Judy Sawyer, the
owner, does not believe things have changed much, but she did invest an additional $3,000 for modifications to the bakery's ovens to make

them more energy efficient. The modifications were supposed to make the ovens at least 75Vo more efficient. Sawyer has asked you to check the energy savings of the new ovens and also to look over other measures of the bakery's productivity to see if the modifications were beneficial. You have the following data to work with: Last Year Production (dozen) Labor (hours) Capital investment ($) Energy (BTU)
1,500 350 15,000 3,000

1.14 Refer to Problem 1.13. The pay will be $8 per hour for employees. Charies Lackey can also improve the yield by purchasing a new blender. The new blender will mean an increase in his investment. This added investment has a cost of $100 per month, but he will achieve the same output (an increase to 1,875) as the change in labor-hours. Which is the better decision? a) Show the productivity change, in loaves per dollar, with an
increase in labor cost (from 640 to 800 hours).

Now
1,500

b)

Show the new productivity, in loaves per dollar, with only an

increase in investment ($ 100 per month more). Show the percent productivity change for labor and investment.

c)

325
18,000

...
F.*l

2;750

1.15 Referto Problems 1.13 and 1.14. If Charles Lackey's utility costs remain constant at $500 per month, labor at $8 per hour,
and cost of ingredients at $0.35 per loaf, but Charles does not purchase the blender suggested in Problem 1 . 1 4, what will the productivity of the bakery be? What will be the percent increase or decrease?

1.16 In December,

General Motors produced 6,600 cus-

tomized vans at its plant in Detroit. The labor productivity at

this plant is known to have been 0.10 vans per labor-hour during
that month. 300 laborers were employed at the plant that month. a) How many hours did the average laborer work that month? b) If productivity can be increased to 0.1 1 vans per hour, how many hours would the average laborer work that month? Natalie Attired runs a sma11 job shop where garments are made. The job shop employs eight workers. Each worker is paid $10 per hour. During the first week of March, each worker worked 45 hours. Together, they produced a batch of 1 32 garments. Of these gaments, 52 were "seconds" (meaning that they were flawed). The seconds were sold for $90 each at a factory outlet store. The remaining 80 garments were sold to retail outlets at a price of $198 per garment. What was the labor productivity, in dollars per labor-hour, at this job shop during the first week of March?

l.l7

l.1l Cunningham Perfbrmance Auto, Inc., modifies 375 autos per year. The manager, Peter Cunningham, is interested in obtaining a measure of overall performance. He has asked you to provide him with a multifactor measure of last year's performance as a benchmark for future comparison. You have assembled the foilowing data. Resource inputs were: labor, 10,000 hours; 500 suspension and engine modification kits; and energy, 100,000

Refer to li''-.:r.'r.

r',,'f; for these additional homework

problems: 1.18-1.19

Chapter 1
Main Heading
WHAT IS OPERATIONS

RapidReview
_- ';_*-_::-.:-; VIDEOS l.l and
.
gOods
FEARSoN .-L ij ji

Review Material
r Productisn-The creation of goods.and.services. r Operations management (OM)*Activities that relats to the creation ol ald services througb the transfotmation of inputs to outputs.

MANAGEMENT?
i

f ,2

p. 36)

OM at Hard Rock OM at Frito-Lay

ORGANIZING TO PRODUCE GOODS AND SERVICES

All

ipp.3fi*S?)
WHY STUDY OM? 1pp.3$*3S)

7. 7. 3. 1. 2. 3. 4'

organiz.ations perform three functions to.create goodq 4nd services: Marketing, which generates demand

Production/operetions, which creates the product Finanie/{rccaLtnting, whtch tracks how welr the oiganization is doing, pays the bitls, and collects the monev

We srudy

OM for four reasons:

To learn how people organize themselves fqrproducfive en{erprige To learn.how goods.and services are produced To understand what operations managers do Bqcause OM is a costly part of an organization.

WHAT OPERATIONS MANAGERS DO {pp. s$*a$}

r Management process-The application of planning, organizing,

ieading, and controlling to achieve objeetives.

staffing,

l. 2, 3. 4. 5. 6. 7. 8. 9,

Ten major

OM decisions are required ofoprations managers: Design of goods and serr ices

Managing quaiity
Process and capacity design

Location.strategy Layout $lrategy

Hum_an resources,

job design, and wqik msasurement

'

Supply-chain management Inventory, mqterial requirements planning, and JIT fust_in_time) Intermediare and short-term scheduling

10. Maintenance

Abqut 407o of all jobs are in OM. Operations maragers possess.iob titles'such as plant manager, quality manager, process improvement consultant, and operations
analyst.
THE HERITAGE OF OPERATIONS

MANAGEMENT

i*p. 4G-4P!

Significant. events in modern OM can be classified into five eras: Early concepts (1776-1 880)-Labor specialization (Smith, Babbege), standardized pans ( Whirney) Scientifi c management ( 1 380-'1 g 1 0)-Gantt charts (Gantt), motion' and time l{udies (Gilbreth),, process analycis (Taylor), quguing theor)z {Erlaag] , 3. Mass production (19r0-1980)---Assembly rine (Ford,/sorensen),:statisiieal samplilg (Shewha4), economic order quantity (I{anis}, linear programming -' (Dantzig); PERT/CPM {DuPont), material requirementr.planning Leaii production f 1980-1995)----Jusr-in-timq, computir.aidgd deiign, electronis data interchange, total quality managemeai, Baldrige Award, empowefment, kanbans Mass customization (1995-presnr):Globalizatiori, Interneve:commerce.. enterprise rgsource planning,.internatiotal qualit5. stand.ards,.finite scheduling, suppiy-chain management, mass. customization, build.to-order,. sustainabiliw:

l,

OPERATIONS IN TTIE SEfiVICE SECTOR {pp. 42*44}

r serviees--conomic acrivities that typically prodqce

as

an intangible produci lsuch education; ntefiainmentl lodglng, govqmment, financial, and health services), Almost all services and almost all goods are a mixture of,a service ano a tangibie prodgqt.

seetor-Jhe segment of the economy thar inaludes ffade, financiai, !e11ice lodging; education; 1egal, medical' and other piofesgionar oqcup4tions. services now constitute the largest economic seitor in postiodustrial societies. The huge productivity increases in agriculture and manufacruring have allowed *or" oi ou, economic resources to he devoted .to seryices. Many service jobs pay very well,

EXCITIIIG NEW TRENDS

II'I I}PERATIONS

MANAGEMENT {pp. aa-as}

:
r

'

Some of the current challenges for opegalions managers,include: High ethical 4''d gogi.l..rtorrsibility; increased legar and professional standards

Global focus; international collatroiation

r.

.
.

Rapid product dwelopment; design collaLroration Environmenially sensitive production; green manufacturing; sustainatrility
MasS customizatiot

.
.

Empowered employees; enriched jobs Supply:chain p4rtnqringi joint venturcs: alliances Jqst-in'time performanqe; lean; continuous improvement

Chapter 1 RaPid Rellqv,t

Main Heading
THE PRODUCTIVITY CHALLENGE {pp. 4$-$t
}

continued

Review Material
lProductivity:-Theratloofoutputs(gqod$andservices)dividedbyoneQrmore
inputs (cuch as labqr, capilal' or'rmanagerrenr)' High produe tion means producing many unitg; while high productivily nieals producing units efficiently. Onilr througH iaileases in productivity can the ilandard qf living of a country . i4rprove, U.s. productivity has averngedz.SVa pey yea! for over a eentuiy;
Units produced Productivitv Input used

.'-t--

;, -,-:-*LT
il"_T:?','

q-J
1.r.1.2

Virtual Office Hours for Solved Problems:

(i:r)

r single-faqtor produciivity-Indiqaiqsihe ratio:of

-.one resouree (input) to the goods and services prcidueed (outputs)., . fuuttifactor producuvity (total faetor. piodnctiYlry}-lndi-eates'the ratio ol i. *urry o, al1 resoureqs (inputs) to the:.goods and services produced {gutputs)'

Multifactor Prqductivity,
Output

Labor

Material

Energy

Capltal

Miscellanequs

$-2)

Mea*utement problems with prqductiyitli:,include;

il)

tbe quality may qtrangel

(3) .preCiqe units of nreasure ma.y be lacki-ng {2) externaLelem. ents rnay interfere, and

r Pioductivity variables.-The thlge factotg criticaLto productivityrimprovement

are,labqr (10%); capital (38%)i and manags4ent (527o)' r Knowledgg,scciety:4 so.lety in which'much of thq 1abo1 force has migrated

frommanua1worktowork.lra$edon.kn0w1edge.'.
ETHIGS AND $OCIAL

Iii"gfU.i"*y
comfiutments,

fiE$PONSIBILITY
{p.
51 }

ethical ehailengei facing operalions:manager$ are (1) gfficiently producing safe'quallty ploduqtsi (2) ma.intaining aclean : " developing and enlronmenr; {31 providing a safe workp{ace: and r(4) honorir'}g stakehoide{

Self Test
r
the chapter and the kev terms listed at the end of the chapter' Belore taking the sell-test, refer t0 the learning objectives listed at the beginning 0f LO1. Productivity increases when: a) inputs inqrease while outputs remain the same' b) inputs decrease while outputs remain the same. c) outputs decrease while inputs remain the same' d) inputs and outputs increase proportionately. e) inputs increase at the same rate as outputs. LO2. Services often: b) are standardized. a) are tangible c) are knowledge based d) are low in customer rnteractlon' e) have consistent product definition. LO3. Productivity: a) can use many factors as the numerator. b) is the same thing as Production.

c) usually uses labor as a factor. d) e) uses management as a factor.

LO5. Multi-factor ProductivitY a) remains constant.
:

seldom uses labor as a factor

b)

cj

is never constant. usually uses substitutes as common variables for the factors

of

c) increases at about 0.5 7o per year. d) is dependent upon 1abor, management, and capital' e) is the same thing as effectiveness.
b)
is never constant

production. d) seldom uses labor as a factor. e) always uses management as a factor. LO6. Productivity increases each year in the United States are a result of three factors: a) labor, capital, management b) engineering, labor, caPital c) engineering, capital, quality control d) engineering, labor, data processing e) engineering, capital, data processing

LO4. Single-factor ProductivitY: a) remains constant.

Answers: LO1. bl LO2. c; LO3. d; LO4. c; LO5' c; LO6.

a.