978-0132921145 Chapter 1

1

C H A P T E R

Operations and Productivity

1. The text suggests four reasons to study OM. We want to under-

industrial societies, but not show much in the way of productivity

improvement measured in labor-hours.

of labor), Frederick W. Taylor (scientific management), Walter

3. See references in the answer to Question 2.

4. The actual charts will differ, depending on the specific organ-

ization the student chooses to describe. The important thing is

er or lesser extent, (a) the three primary functions of operations,

5. The answer to this question may be similar to that for

on the chart additional information such as the number of persons

6. The basic functions of a firm are marketing, accounting/

finance, and operations. An interesting class discussion: “Do all

firms/organizations (private, government, not-for-profit) perform

7. The 10 strategic decisions of operations management are

product design, quality, process, location, layout, human resources,

supply-chain management, inventory, scheduling (aggregate and

8. Four areas that are important to improving labor productivity

are: (1) basic education (basic reading and math skills), (2) diet of

the labor force, (3) social overhead that makes labor available

9. Productivity is harder to measure when the task becomes

more intellectual. A knowledge society implies that work is more

many other countries are increasingly “knowledge” societies,

10. Productivity is difficult to measure because precise units of

11. Mass customization is the flexibility to produce in order to

meet specific customer demands, without sacrificing the low

cost of a product oriented process. Rapid product development is

12. Labor productivity in the service sector is hard to improve

that service—the hair cut), (3) it may be an intellectual task per-

increase span of control.

ETHICAL DILEMMA

AMERICAN CAR BATTERY INDUSTRY

You may want to begin the discussion by asking how ethical is it

for you to be in the lead battery business when you know that any

batteries you recycle will very likely find their way to an overseas

tainment. Then after a likely conclusion of “Well someone has to

provide batteries” you can move to the following discussion.

(a) As owner of an independent auto repair shop trying to dis-

pose of a few old batteries each week, your options may be

teries. Alternatively, shop for a battery supplier that wants

your business enough to dispose of your old batteries.

Third, because there is obviously a market for the lead in

2 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y

1,000 tires/$40,000 = 0.025 tires/dollar.

1.0256, so the change is a 2.56% increase.

1.10

Last Year

This Year

Change

Percent Change

Labor hrs.

1,500 = 4.29

350

1,500 = 4.62

325

0.33

4.29

= 7.7%

Capital invested

1,500 = 0.10

15,000

1,500 = 0.08

18,000

0.02

0.1

−

= –20%

Energy (btu)

1,500 = 0.50

3,000

1,500 = 0.55

2,750

0.05

0.50

= 10%

1.11 Multifactor productivity is:

375 autos/[($20 × 10,000) + ($1,000 × 500) +

($3 × 100,000)] = 375/(200,000 + 500,000 +

300,000) = 375/1,000,000

= .000375 autos per dollar of inputs

1.12 (a) Before: 500/20 = 25 boxes per hour;

1.13 1,500 × 1.25 = 1,875 (new demand)



Outputs = Productivity

Inputs

1,875 = 2.344

Labor-hours

1,875

New process = 800 labor-hours

2.344

800 = 5 workers

160

1,500

Current process = = 2.344

labor-hours

1,500 = labor-hours 640

2.344

640 = 4 workers

160

Add one worker.

1.14 (a) Labor change:

1,500 1,500

(640 × $8) 5,120

1,875 = 0.293 loaves/$

(800 × $8)

(640 × $8) 5,120

1,875 1,875

= = .359 loaves/$

(640 × 8) + (100) 5,220

.293 – .293

(c) Percent change : = 0 (labor)

.293

.359 – .293

Percent change : = .225

.293

= 22.5% (investment)



1,500

Old process = (640 8) + 500 + (1,500 0.35)

1,875

New process = (800 8) + 500 + (1,875 0.35)

1,875

= = 0.248

7,556.25

0.248 – 0.244

Percent change = = 1.6%

0.244

1.15

Labor–hours

labor–hour

$ output 52($90) + 80($198)

=8 (45)

20,520

= = $57.00 per

360

1.17

After, 650/24 = 27.08

(b) 27.08/25

= 1.083, or an increase of 8.3% in productivity

(c) New labor productivity = 700 / 24 = 29.167

boxes per hour

=

6,600 vans

(b) Now = 0.11, so 60,000 labor-hours

labor-hours

60,000 labor-hours

so, 200 labor-hours/laborer

300 laborers on average, per month

x

4 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y

(supply needs, preprinted waybills, package weights, pickup and

3. Other companies in the industry do an effective job of estab-

Determining output (in some standard measure, perhaps pounds)

and labor-hours would be a good start for single-factor productivity.

CHAPTER 1 OPERATIO NS AND PR O DU CT I VI T Y 5

3. How are the 10 decisions of OM different when applied by

the operations manager of a production process such as

Frito-Lay than when applied by a service organization such as

Hard Rock Cafe?

Hard Rock performs all 10 of the decisions as well, only with a

1. Hard Rock’s 10 decisions: This is early in the course to

discuss these in depth, but still a good time to get the students

engaged in the 10 OM decisions around which the text is

structured.

◼ Product design: Hard Rock’s tangible product is food and

like any tangible product it must be designed, tested, and

“costed out.” The intangible product includes the music,

◼ Process: The process can be discussed from many

perspectives: (a) the process of processing a guest, to

their seat, taking the order, order processing, delivery of

the meal, payment, etc., (b) the process of how a meal is

prepared (see, for instance, the example box in Chapter 2

on Chef Pierre Alexander), or (c) some subset of any

interesting thing about Hard Rock’s inventory is that they

maintain $40 million of memora-bilia with all sorts of

special care, tracking, and storage issues.

◼ Scheduling: Because most Hard Rock Cafe’s sales are

driven by tourists, the fluctuations in seasonal, daily, and

hourly demands for food are huge. This creates a very

interesting and challenging task for the operations

◼

2. Productivity of kitchen staff is simply the output (number of

meals) over the input (hours worked). The calculation is how many

meals prepared over how many hours spent preparing them. The

same kind of calculation can be done for the wait staff. In fact,

3. Each of the 10 decisions discussed in Question 1 can be

addressed with a tangible product like an automobile.

◼ Product design: The car must be designed, tested, and

costed out. The talents may be those of an engineer or

operations manager rather than a chef, but the task is the

6 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y

down time is very expensive because of high fixed and

1. The analysis of the productivity data is shown below:

Both labor and material productivity increased, but capital equip-

ment productivity did not. The net result is a large negative change

2. An analysis of adjusted results reduces the negative impact on

the capital allocation but there is still a negative growth in multi-

factor productivity. After adjustment for inflation, the material

costs are still higher in 2009. Yet, one must be aware of the extra

changes in capital costs is warranted. Even after adjusting for in-

flation, multifactor productivity was not positive. However, labor

CHAPTER 1 OPERATIO NS AND PR O DU CT I VI T Y 5

and materials productivity was favorable. The capital investment

cost (as figured by the accounting department) was so large as to

make his multifactor productivity negative. Multifactor productiv–

ity has fallen by 11.61% before adjustment and by 7.88% after the

adjustment for inflation.