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Chapter 02 - Competitiveness, Strategy, and Productivity
2-8
Education.
6. Current period productivity =
hourunits
hours
units / 00.4
40
160
(rounded to two decimals)
Previous period productivity =
hourunits
hours
units / 83.3
63
381
(rounded to two decimals)
7. a. Labor Productivity and Multifactor Productivity for Each Unit
Unit
Employees
Customers
per Day
Labor
Cost
Overhead
Cost
Material
Cost
Total
Cost
Labor
Productivity
MFP (2
decimals)
MFP (3
decimals)
A
4
36
800
800
180
1,780
9.00
0.02
0.020
B
5
40
1,000
1,000
200
2,200
8.00
0.02
0.018
C
8
60
1,600
1,600
300
3,500
7.50
0.02
0.017
D
3
20
600
600
100
1,300
6.67
0.02
0.015
Notes:
Labor Cost = Employees x 8 hours x $25/hour
Overhead Cost = Labor Cost x 1.00
Chapter 02 - Competitiveness, Strategy, and Productivity
2-9
Education.
b. Labor Productivity and Multifactor Productivity for Each Unit (each employee is able
to process one additional customer per day)
Unit
Employees
Customers
per Day
Labor
Cost
Overhead
Cost
Material
Cost
Total
Cost
Labor
Productivity
MFP (2
decimals)
MFP (3
decimals)
A
4
40
800
800
200
1,800
10.00
0.02
0.022
B
5
45
1,000
1,000
225
2,225
9.00
0.02
0.020
C
8
68
1,600
1,600
340
3,540
8.50
0.02
0.019
D
3
23
600
600
115
1,315
7.67
0.02
0.017
Overhead Cost = Labor Cost x 1.00
Material Cost = Customers x $5/customer
Total Cost = Labor Cost + Overhead Cost + Material Cost
Labor Productivity = Customers per Day / Employees (rounded to two decimals)
Multifactor Productivity (MFP) = Output / Total Cost (shown rounded to two decimals & three decimals
above)
8.
Search
Approach
Search
Average
Time
(min.)
Cost per Search
Output
($)
Productivity per
Dollar Input
Current
40
40 min. x $2/min. = $80
$400
$400/$80 = $5.00
Company A
30
(40 – 10)
(30 min x $2/min.) +
$3.50/search = $63.50
$400
$400/$63.50 = $6.30
Company B
28
(40 – 12)
(28 min. x $2/min.) +
$3.60/search = $59.60
$400
$400/$59.60 = $6.71
Notes:
This problem expresses the output in terms of standard price rather than in units.
Chapter 02 - Competitiveness, Strategy, and Productivity
2-10
Education.
9. Number of employees = 3.
Each employee earns $25/hour and works 40 hours/week.
Each employee identifies an average of 3,000 leads per week.
The sign-up rate is 4% of the leads identified.
Revenue per sign-up = $70.
Material costs = $1,000 per week.
Overhead costs = $9,000 per week.
Multifactor Productivity = Fees generated per dollar of input
Multifactor Productivity = 1.94 (rounded to two decimals)
Case: An American Tragedy; How a Good Company Died
1. Internal reasons for Burgmaster’s demise include the following: The LBO crippled the company
with debt and created pressure to generate cash. Burgmaster’s managers responded by pushing
products out as fast as possible, thereby routinely shipping defective machines. In addition,
Burgmaster promised customers features that engineers had not designed yet. In addition, the
LBO choked off funds needed for new equipment. Burgmaster’s scheduling system was too crude
for complex machine-tool manufacturing—this resulted in supply errors that resulted in delays
and cost increases. After the LBO, management appeared to be less involved on the shop floor
also—this led to complacency.
External reasons for Burgmaster’s demise include the following: Japanese producers started
making and selling better, cheaper machines. Government policy (tax laws and macroeconomic
policies) encouraged LBOs and speculation instead of productive investment. In addition,
President Reagan refused to sign legislation to withhold the investment tax credit for certain
Japanese-made machine tools. Finally, Pentagon procurement policies favored exotic, custom
machines over standard, low-cost models (the low-cost models were manufactured by
Burgmaster).
Operations management (OM) played a significant role in the company’s demise: The OM
function knowingly shipped defective products, which harmed sales. Someone in OM decided to
implement a scheduling system that did not function well and led to delays and increased costs.
Even without investment, the OM manager could have made low-cost, continuous improvements
in the manufacturing process.
2. Inadequate strategic planning could have been a factor for the company. If the company had been
conducting environmental scans periodically, they may have been able to plan for the issues that
ultimately caused the failure of the company.
2-12
Education.
3. She should consider time, cost and competition.
4. The advantages would be greater market share, higher sales opportunity, economies of scale, and
5. a. There will be many people who would defend this statement and many small businesses are
successful without mission statements and objectives. However, it is difficult to project how
much improvement could be made if they did have mission statements and objectives and
used them to provide better direction, guidance, and focus. Short-run results may not be
apparent, but over a longer period, gradual and subtler improvements may become noticeable
and even dramatic improvements can take place in the end.
b. The development of the mission statement would force Hazel to sit down and spend some
time determining what business she is in or wants to be in and her business’ reason for
existence. This process also should help Hazel develop a clear statement of purpose, which
extremely important for the new small business, which desperately needs direction and
guidance in the beginning.
Case: Your Garden Gloves
1. We are given the following:
Crew Size
Average Productivity per Crew
2
4,234 square feet per day
3
5,352 square feet per day
4
7,860 square feet per day
We need to determine the productivity per worker using the following formula:
Crew Size
Average Productivity per Crew
Productivity per Worker
2
4,234 square feet per day
4,234 / 2 = 2,117 square feet per day
3
5,352 square feet per day
5,352 / 3 = 1,784 square feet per day
4
7,860 square feet per day
7,860 / 4 = 1,965 square feet per day
The crew size of 2 had the highest productivity. The crew size of 3 had the lowest productivity.
Chapter 02 - Competitiveness, Strategy, and Productivity
The crew size of 4 was in the middle.
One reason for the difference in productivity between a crew size of 2 and a crew size of 3 could
be that when 3 workers are assigned to a small job, workers may be getting in the way of each
other, which could cause wait time. A second reason could be that the larger crew size may lead to
more standing around and talking. A third reason might be that workers are more productive when
working in pairs.
A possible reason for the difference in productivity between a crew size of 2 and a crew size of 4
2. Even though the productivity of 4 was not the highest, the total time to complete the cleanup
3. Perhaps the size of the crew is not as influential in regards to productivity levels as is the
composition of the crew. One area that the productivity ratios fail to accommodate for is team
synergy.
Operations Tour: The U.S. Postal Service
1. The U.S. Postal Service is a very large organization and processes a large volume of mail using
2. The new automated processing equipment, optical readers, and barcode readers resulted in
3. Competition from other methods of delivering information has caused the USPS to rethink their
market. In addition, with added competition from UPS and FedEx, USPS will have to reestablish
4. The U.S. Postal Service developed the following strategies to become more competitive against
the new threats it was facing:
a. Reorganization—elimination of layers of management and overhead positions, elimination of
Chapter 02 - Competitiveness, Strategy, and Productivity
5. The USPS’s changes resulted in the following: Costs were cut because layers of management
were eliminated and overhead positions were cut by about 30,000. Processing and mail delivery
at major postal facilities were improved. Expanded retail hours, a more user-friendly Domestic
6. The increased use of e-mail will result in reduction of using traditional mailing, which in turn will
reduce the demand for the U.S. Postal System, resulting in a possible decline in its productivity.
7. The use of standard shipping containers and flat-rate mailers helped the U.S. Postal System meet
specific mailer needs and to simplify its complex rate structure.
